UNITED
STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
Annual Report
Pursuant to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
For
the fiscal year ended
December 31,
2014
Commission
file number 1-10706
COMERICA
INCORPORATED
(Exact
Name of Registrant as Specified in Its Charter)
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Delaware |
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38-1998421 |
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(State
or Other Jurisdiction of Incorporation) |
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(IRS
Employer Identification
Number) |
Comerica Bank
Tower
1717
Main Street, MC 6404
Dallas,
Texas 75201
(Address
of Principal Executive Offices) (Zip Code)
(214) 462-6831
(Registrant’s
Telephone Number, Including Area Code)
Securities
registered pursuant to Section 12(b) of
the
Exchange Act:
ž
Common Stock, $5 par
value
ž Warrants
to Purchase Common Stock (expiring November 14, 2018)
These
securities are registered on the New York Stock Exchange.
Securities
registered pursuant to Section 12(g) of the
Exchange
Act:
ž Warrants
to Purchase Common Stock (expiring December 12, 2018)
Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes ý No o
Indicate by check mark if
registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. Yes o No ý
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes ý No o
Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
(§229.405) is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.
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Large
accelerated
filer ý |
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Accelerated
filer o |
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Non-accelerated
filer o
(Do not
check if a smaller
reporting
company) |
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Smaller
reporting
company o |
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o No ý
At June 30,
2014 (the last
business day of the registrant’s most recently completed second fiscal quarter),
the registrant’s common stock, $5 par value, held by non-affiliates
had an aggregate market value of approximately $8.9
billion based on the
closing price on the New York Stock Exchange on that date of $50.16 per share. For purposes of this
Form 10-K only, it has been assumed that all common shares Comerica’s Trust
Department holds for Comerica’s employee plans, and all common shares the
registrant’s directors and executive officers hold, are shares held by
affiliates.
At February 11,
2015, the registrant
had outstanding 178,359,394
shares of its common stock, $5 par value.
Documents
Incorporated by Reference:
Part III:
Items 10-14—Proxy Statement
for the Annual Meeting of Shareholders to be held April 28,
2015.
TABLE OF
CONTENTS
PART
I
Item 1.
Business.
GENERAL
Comerica Incorporated
(“Comerica”) is a financial services company, incorporated under the laws of the
State of Delaware, and headquartered in Dallas, Texas. Based on total assets as
reported in the most recently filed Consolidated Financial Statements for Bank
Holding Companies (FR Y-9C), it was among the 25 largest commercial United
States (“U.S.”) financial holding companies. Comerica was formed in 1973 to
acquire the outstanding common stock of Comerica Bank, which at such time was a
Michigan banking corporation and one of Michigan's oldest banks (formerly
Comerica Bank-Detroit). On October 31, 2007, Comerica Bank, a Michigan
banking corporation, was merged with and into Comerica Bank, a Texas banking
association (“Comerica Bank”). As of December 31,
2014, Comerica owned
directly or indirectly all the outstanding common stock of 2 active banking and 40 non-banking subsidiaries. At
December 31,
2014, Comerica had
total assets of approximately $69.2
billion, total
deposits of approximately $57.5
billion, total loans
(net of unearned income) of approximately $48.6
billion and
shareholders’ equity of approximately $7.4
billion.
Business
Segments
Comerica has strategically
aligned its operations into three major business segments: the Business Bank,
the Retail Bank, and Wealth Management. In addition to the three major
business segments, Finance is also reported as a segment. We provide information
about our business segments in Note 22 on pages F-101 through F-105 of
the Notes to Consolidated Financial Statements located in the Financial Section
of this report.
Comerica operates in three
primary geographic markets - Texas, California, and Michigan, as well as in
Arizona and Florida, with select businesses operating in several other states,
and in Canada and Mexico. We provide information about our market segments in
Note 22 on pages F-101 through F-105 of the Notes to Consolidated
Financial Statements located in the Financial Section of this report.
Activities with customers
domiciled outside the U.S., in total or with any individual country, are not
significant. We provide information on risks attendant to foreign operations:
(1) under the caption “Concentration of Credit Risk” on pages F-26 through F-27
of the Financial Section of this report; and (2) under the caption
"International Exposure" on page F-29 of the Financial Section of this
report.
We provide information about the
net interest income and noninterest income we received from our various classes
of products and services: (1) under the caption, “Analysis of Net Interest
Income-Fully Taxable Equivalent (FTE)” on page F-6 of the Financial Section
of this report; (2) under the caption “Net Interest Income” on
pages F-7 through F-8 of the Financial Section of this report; and
(3) under the caption “Noninterest Income” on pages F-8 through F-9 of
the Financial Section of this report.
Acquisition
of Sterling Bancshares, Inc.
On July 28, 2011, Comerica
acquired all the outstanding common stock of Sterling Bancshares, Inc.
("Sterling"), a bank holding company headquartered in Houston, Texas, in a
stock-for-stock transaction. Sterling common shareholders and holders of
outstanding Sterling phantom stock units received 0.2365 shares of Comerica's
common stock in exchange for each share of Sterling common stock or phantom
stock unit. As a result, Comerica issued approximately 24 million common shares
with an acquisition date fair value of $793 million, based on Comerica's closing
stock price of $32.67 on July 27, 2011. Based on the merger agreement,
outstanding and unexercised options to purchase Sterling common stock were
converted into fully vested options to purchase common stock of Comerica. In
addition, outstanding warrants to purchase Sterling common stock were converted
into warrants to purchase common stock of Comerica. Including an insignificant
amount of cash paid in lieu of fractional shares, the fair value of total
consideration paid was $803 million. The acquisition of Sterling significantly
expanded Comerica's presence in Texas, particularly in the Houston and San
Antonio areas.
COMPETITION
The financial services business
is highly competitive. Comerica and its subsidiaries mainly compete in their
three primary geographic markets of Texas, California and Michigan, as well as
in the states of Arizona and Florida. They also compete in broader, national
geographic markets, as well as markets in Mexico and Canada. They are subject to
competition with respect to various products and services, including, without
limitation, loans and lines of credit, deposits, cash management, capital market
products, international trade finance, letters of credit, foreign exchange
management services, loan syndication services, consumer lending, consumer
deposit gathering and mortgage loan origination, consumer products, fiduciary
services, private banking, retirement services, investment management and
advisory services, investment banking services, brokerage services, the sale of
annuity products, and the sale of life, disability and long-term care insurance
products.
Comerica competes in terms of
products and pricing with large national and regional financial institutions and
with smaller financial institutions. Some of Comerica's larger competitors,
including certain nationwide banks that have a significant
presence in Comerica's market
area, may make available to their customers a broader array of product, pricing
and structure alternatives and, due to their asset size, may more easily absorb
loans in a larger overall portfolio. Some of Comerica's smaller competitors may
have more liberal lending policies and processes. Further, Comerica's banking
competitors may be subject to a significantly different or reduced degree of
regulation due to their asset size or types of products offered. They may also
have the ability to more efficiently utilize resources to comply with
regulations or may be able to more effectively absorb the costs of regulations
into their existing cost structure. Comerica believes that the level of
competition in all geographic markets will continue to increase in the future.
In addition to banks, Comerica's
banking subsidiaries also face competition from other financial intermediaries,
including savings and loan associations, consumer finance companies, leasing
companies, venture capital funds, credit unions, investment banks, insurance
companies and securities firms. Competition among providers of financial
products and services continues to increase, with consumers having the
opportunity to select from a growing variety of traditional and nontraditional
alternatives. The ability of non-banking financial institutions to provide
services previously limited to commercial banks has intensified competition.
Because non-banking financial institutions are not subject to many of the same
regulatory restrictions as banks and bank holding companies, they can often
operate with greater flexibility and lower cost structures.
In addition, the industry
continues to consolidate, which affects competition by eliminating some regional
and local institutions, while strengthening the franchises of
acquirers.
SUPERVISION
AND REGULATION
Banks, bank holding companies,
and financial institutions are highly regulated at both the state and federal
level. Comerica is subject to supervision and regulation at the federal level by
the Board of Governors of the Federal Reserve System (“FRB”) under the Bank
Holding Company Act of 1956, as amended. The Gramm-Leach-Bliley Act expanded the
activities in which a bank holding company registered as a financial holding
company can engage. The conditions to be a financial holding company include,
among others, the requirement that each depository institution subsidiary of the
holding company be well capitalized and well managed. Effective July 2011, the
Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”)
also requires the well capitalized and well managed standards to be met at the
financial holding company level. Comerica became a financial holding company in
2000. As a financial holding company, Comerica may affiliate with securities
firms and insurance companies, and engage in activities that are financial in
nature. Activities that are “financial in nature” include, but are not limited
to: securities underwriting; securities dealing and market making; sponsoring
mutual funds and investment companies (subject to regulatory requirements,
including restrictions set forth in the Volcker Rule, described under the
heading "The Dodd-Frank Wall Street Reform and Consumer Protection Act and Other
Recent Legislative and Regulatory Developments"
below); insurance
underwriting and agency; merchant banking; and activities that the FRB has
determined to be financial in nature or incidental or complementary to a
financial activity, provided that it does not pose a substantial risk to the
safety or soundness of the depository institution or the financial system
generally. A bank holding company that is not also a financial holding company
is limited to engaging in banking and other activities previously determined by
the FRB to be closely related to banking.
Comerica Bank is chartered by the
State of Texas and at the state level is supervised and regulated by the Texas
Department of Banking under the Texas Finance Code. Comerica Bank has elected to
be a member of the Federal Reserve System under the Federal Reserve Act and,
consequently, is supervised and regulated by the Federal Reserve Bank of Dallas.
Comerica Bank & Trust, National Association is chartered under federal
law and is subject to supervision and regulation by the Office of the
Comptroller of the Currency (“OCC”) under the National Bank Act. Comerica
Bank & Trust, National Association, by virtue of being a national bank,
is also a member of the Federal Reserve System. The deposits of Comerica Bank
and Comerica Bank & Trust, National Association are insured by the
Deposit Insurance Fund of the Federal Deposit Insurance Corporation (“FDIC”) to
the extent provided by law. In Canada, Comerica Bank is supervised by the Office
of the Superintendent of Financial Institutions.
The FRB supervises non-banking
activities conducted by companies directly and indirectly owned by Comerica. In
addition, Comerica's non-banking subsidiaries are subject to supervision and
regulation by various state, federal and self-regulatory agencies, including,
but not limited to, the Financial Industry Regulatory Authority (in the case of
Comerica Securities, Inc.), the Office of Financial and Insurance
Regulation of the State of Michigan (in the case of Comerica
Securities, Inc. and Comerica Insurance Services, Inc.), and the
Securities and Exchange Commission (“SEC”) (in the case of Comerica
Securities, Inc., World Asset Management, Inc. and Wilson, Kemp &
Associates, Inc.).
Described below are material
elements of selected laws and regulations applicable to Comerica and its
subsidiaries. The descriptions are not intended to be complete and are qualified
in their entirety by reference to the full text of the statutes and regulations
described. Changes in applicable law or regulation, and in their application by
regulatory agencies, cannot be predicted, but they may have a material effect on
the business of Comerica and its subsidiaries.
Requirements
for Approval of Acquisitions and Activities
In
most cases, no FRB approval is required for Comerica to acquire a company
engaged in activities that are financial in nature or incidental to activities
that are financial in nature, as determined by the FRB. However, Federal and
state laws impose notice and approval requirements for mergers and acquisitions
of other depository institutions or bank holding companies. Prior approval is
required before Comerica may acquire the beneficial ownership or control of more
than 5% of the voting shares or substantially all of the assets of a bank
holding company (including a financial holding company) or a bank.
The Community Reinvestment Act of
1977 (“CRA”) requires U.S. banks to help serve the credit needs of their
communities. Comerica Bank's current rating under the “CRA” is “satisfactory”.
If any subsidiary bank of Comerica were to receive a rating under the CRA of
less than “satisfactory,” Comerica would be prohibited from engaging in certain
activities.
In addition, Comerica, Comerica
Bank and Comerica Bank & Trust, National Association, are each “well
capitalized” and “well managed” under FRB standards. If any subsidiary bank of
Comerica were to cease being “well capitalized” or “well managed” under
applicable regulatory standards, the FRB could place limitations on Comerica's
ability to conduct the broader financial activities permissible for financial
holding companies or impose limitations or conditions on the conduct or
activities of Comerica or its affiliates. If the deficiencies persisted, the FRB
could order Comerica to divest any subsidiary bank or to cease engaging in any
activities permissible for financial holding companies that are not permissible
for bank holding companies, or Comerica could elect to conform its non-banking
activities to those permissible for a bank holding company that is not also a
financial holding company.
Further, the effectiveness of
Comerica and its subsidiaries in complying with anti-money laundering
regulations (discussed below) is also taken into account by the FRB when
considering applications for approval of acquisitions.
Transactions
with Affiliates
Various governmental
requirements, including Sections 23A and 23B of the Federal Reserve Act and the
FRB's Regulation W, limit borrowings by Comerica and its nonbank subsidiaries
from its affiliate insured depository institutions, and also limit various other
transactions between Comerica and its nonbank subsidiaries, on the one hand, and
Comerica's affiliate insured depository institutions, on the other. For example,
Section 23A of the Federal Reserve Act limits the aggregate outstanding
amount of any insured depository institution's loans and other “covered
transactions” with any particular nonbank affiliate to no more than 10% of the
institution's total capital and limits the aggregate outstanding amount of any
insured depository institution's covered transactions with all of its nonbank
affiliates to no more than 20% of its total capital. “Covered transactions” are
defined by statute to include a loan or extension of credit, as well as a
purchase of securities issued by an affiliate, a purchase of assets (unless
otherwise exempted by the FRB) from the affiliate, the acceptance of securities
issued by the affiliate as collateral for a loan, and the issuance of a
guarantee, acceptance or letter of credit on behalf of an affiliate.
Section 23A of the Federal Reserve Act also generally requires that an
insured depository institution's loans to its nonbank affiliates be, at a
minimum, 100% secured, and Section 23B of the Federal Reserve Act generally
requires that an insured depository institution's transactions with its nonbank
affiliates be on terms and under circumstances that are substantially the same
or at least as favorable as those prevailing for comparable transactions with
nonaffiliates. The Dodd-Frank Act significantly expanded the coverage and scope
of the limitations on affiliate transactions within a banking organization. For
example, commencing in July 2012, the Dodd-Frank Act applies the 10% of capital
limit on covered transactions to financial subsidiaries and amends the
definition of “covered transaction” to include (i) securities borrowing or
lending transactions with an affiliate, and (ii) all derivatives transactions
with an affiliate, to the extent that either causes a bank or its affiliate to
have credit exposure to the securities borrowing/lending or derivative
counterparty.
Privacy
The privacy provisions of the
Gramm-Leach-Bliley Act generally prohibit financial institutions, including
Comerica, from disclosing nonpublic personal financial information of consumer
customers to third parties for certain purposes (primarily marketing) unless
customers have the opportunity to “opt out” of the disclosure. The Fair Credit
Reporting Act restricts information sharing among affiliates for marketing
purposes.
Anti-Money
Laundering Regulations
The
Uniting and Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act (“USA PATRIOT Act”) of 2001 and its
implementing regulations substantially broadened the scope of U.S. anti-money
laundering laws and regulations by requiring insured depository institutions,
broker-dealers, and certain other financial institutions to have policies,
procedures, and controls to detect, prevent, and report money laundering and
terrorist financing. The USA PATRIOT Act and its regulations also provide for
information sharing, subject to conditions, between federal law enforcement
agencies and financial institutions, as well as among financial institutions,
for counter-terrorism purposes. Federal banking regulators are required, when
reviewing bank holding company acquisition and bank merger applications, to take
into account the effectiveness of the anti-money laundering activities of the
applicants. To comply with these obligations, Comerica and its various operating
units have implemented appropriate internal practices, procedures, and
controls.
Interstate
Banking and Branching
The Interstate Banking and
Branching Efficiency Act (the “Interstate Act”), as amended by the Dodd-Frank
Act, permits a bank holding company, with FRB approval, to acquire banking
institutions located in states other than the bank holding company's home state
without regard to whether the transaction is prohibited under state law, but
subject to any state requirement that the bank has been organized and operating
for a minimum period of time, not to exceed five years, and the requirement that
the bank holding company, prior to and following the proposed acquisition,
control no more than 10% of the total amount of deposits of insured depository
institutions in the U.S. and no more than 30% of such deposits in that state (or
such amount as established by state law if such amount is lower than 30%). The
Interstate Act, as amended, also authorizes banks to operate branch offices
outside their home states by merging with out-of-state banks, purchasing
branches in other states and by establishing de novo branches in other states,
subject to various conditions. In the case of purchasing branches in a state in
which it does not already have banking operations, the “host” state must have
“opted-in” to the Interstate Act by enacting a law permitting such branch
purchases. The Dodd-Frank Act expanded the de novo interstate branching
authority of banks beyond what had been permitted under the Interstate Act by
eliminating the requirement that a state expressly “opt-in” to de novo
branching, in favor of a rule that de novo interstate branching is permissible
if under the law of the state in which the branch is to be located, a state bank
chartered by that state would be permitted to establish the branch. Effective
July 21, 2011, the Dodd-Frank Act also required that a bank holding company
or bank be well capitalized and well managed (rather than simply adequately
capitalized and adequately managed) in order to take advantage of these
interstate banking and branching provisions.
Comerica has consolidated most of
its banking business into one bank, Comerica Bank, with branches in Texas,
Arizona, California, Florida and Michigan.
Dividends
Comerica is a legal entity
separate and distinct from its banking and other subsidiaries. Most of
Comerica's revenues result from dividends its bank subsidiaries pay it. There
are statutory and regulatory requirements applicable to the payment of dividends
by subsidiary banks to Comerica, as well as by Comerica to its shareholders.
Certain, but not all, of these requirements are discussed below.
Comerica Bank and Comerica
Bank & Trust, National Association are required by federal law to
obtain the prior approval of the FRB and/or the OCC, as the case may be, for the
declaration and payment of dividends, if the total of all dividends declared by
the board of directors of such bank in any calendar year will exceed the total
of (i) such bank's retained net income (as defined and interpreted by
regulation) for that year plus (ii) the retained net income (as defined and
interpreted by regulation) for the preceding two years, less any required
transfers to surplus or to fund the retirement of preferred stock. At January 1,
2015, Comerica's subsidiary banks
could declare aggregate dividends of approximately $375
million from
retained net profits of the preceding two years. Comerica's subsidiary banks
declared dividends of $380
million in
2014, $480
million in
2013 and $497
million in
2012.
Further, federal regulatory
agencies can prohibit a banking institution or bank holding company from
engaging in unsafe and unsound banking practices and could prohibit the payment
of dividends under circumstances in which such payment could be deemed an unsafe
and unsound banking practice. Under the Federal Deposit Insurance Corporation
Improvement Act (“FDICIA”), “prompt corrective action” regime discussed below,
which applies to each of Comerica Bank and Comerica Bank & Trust, National
Association, a subject bank is specifically prohibited from paying dividends to
its parent company if payment would result in the bank becoming
“undercapitalized.” In addition, Comerica Bank is also subject to limitations
under Texas state law regarding the amount of earnings that may be paid out as
dividends to its parent company, and requiring prior approval for payments of
dividends that exceed certain levels.
Additionally, the payment of
dividends by Comerica to its shareholders is subject to the non-objection of the
FRB pursuant to the Comprehensive Capital Analysis and Review (CCAR) program.
For more information, please see “The Dodd-Frank Wall Street Reform and Consumer
Protection Act and Other Recent Legislative and Regulatory Developments” in this
section.
Source of
Strength and Cross-Guarantee Requirements
Federal law and FRB regulations
require that bank holding companies serve as a source of strength to each
subsidiary bank and commit resources to support each subsidiary bank. This
support may be required at times when a bank holding company may not be able to
provide such support without adversely affecting its ability to meet other
obligations. Similarly, under the cross-guarantee provisions of the Federal
Deposit Insurance Act, in the event of a loss suffered or anticipated by the
FDIC (either as a result of the failure of a banking subsidiary or related to
FDIC assistance provided to such a subsidiary in danger of failure), the other
banking subsidiaries may be assessed for the FDIC's loss, subject to certain
exceptions.
Federal
Deposit Insurance Corporation Improvement Act
FDICIA requires, among other
things, the federal banking agencies to take “prompt corrective action” in
respect of depository institutions that do not meet minimum capital
requirements. FDICIA establishes five capital tiers: “well capitalized,”
“adequately capitalized,” “undercapitalized,” “significantly undercapitalized”
and “critically undercapitalized.” A depository
institution's capital tier will
depend upon where its capital levels are in relation to various relevant capital
measures, which, among others, include a Tier 1 and total risk-based
capital measure and a leverage ratio capital measure.
Regulations establishing the
specific capital tiers provide that, for a depository institution to be well
capitalized, it must have a total risk-based capital ratio of at least 10% and a
Tier 1 risk-based capital ratio of at least 6%, a Tier 1 leverage
ratio of at least 5% and not be subject to any specific capital order or
directive. For an institution to be adequately capitalized, it must have a total
risk-based capital ratio of at least 8%, a Tier 1 risk-based capital ratio
of at least 4%, and a Tier 1 leverage ratio of at least 4% (and in some
cases 3%). Under certain circumstances, the appropriate banking agency may treat
a well capitalized, adequately capitalized or undercapitalized institution as if
the institution were in the next lower capital category.
As of December 31,
2014, Comerica and
its banking subsidiaries exceeded the ratios required for an institution to be
considered “well capitalized” under these regulations.
FDICIA generally prohibits a
depository institution from making any capital distribution (including payment
of a dividend) or paying any management fee to its holding company if the
depository institution would thereafter be undercapitalized. Undercapitalized
depository institutions are subject to limitations on growth and certain
activities and are required to submit an acceptable capital restoration plan.
The federal banking agencies may not accept a capital plan without determining,
among other things, that the plan is based on realistic assumptions and is
likely to succeed in restoring the depository institution's capital. In
addition, for a capital restoration plan to be acceptable, the institution's
parent holding company must guarantee for a specific time period that the
institution will comply with such capital restoration plan. The aggregate
liability of the parent holding company under the guaranty is limited to the
lesser of (i) an amount equal to 5% of the depository institution's total
assets at the time it became undercapitalized, or (ii) the amount that is
necessary (or would have been necessary) to bring the institution into
compliance with all capital standards applicable with respect to such
institution as of the time it fails to comply with the plan. If a depository
institution fails to submit or implement an acceptable plan, it is treated as if
it is significantly undercapitalized.
Significantly undercapitalized
depository institutions are subject to a number of requirements and
restrictions. Specifically, such a depository institution may be required to do
one or more of the following, among other things: sell sufficient voting stock
to become adequately capitalized, reduce the interest rates it pays on deposits,
reduce its rate of asset growth, dismiss certain senior executive officers or
directors, or stop accepting deposits from correspondent banks. Critically
undercapitalized institutions are subject to the appointment of a receiver or
conservator or such other action as the FDIC and the applicable federal banking
agency shall determine appropriate.
As an additional means to
identify problems in the financial management of depository institutions, FDICIA
requires federal bank regulatory agencies to establish certain non-capital
safety and soundness standards for institutions any such agency supervises. The
standards relate generally to, among others, earnings, liquidity, operations and
management, asset quality, various risk and management exposures (e.g., credit,
operational, market, interest rate, etc.) and executive compensation. The
agencies are authorized to take action against institutions that fail to meet
such standards.
FDICIA also contains a variety of
other provisions that may affect the operations of depository institutions
including reporting requirements, regulatory standards for real estate lending,
“truth in savings” provisions, the requirement that a depository institution
give 90 days prior notice to customers and regulatory authorities before
closing any branch, and a prohibition on the acceptance or renewal of brokered
deposits by depository institutions that are not well capitalized or are
adequately capitalized and have not received a waiver from the
FDIC.
Capital
Requirements
Comerica and its bank
subsidiaries are subject to risk-based capital requirements and guidelines
imposed by the FRB and/or the OCC.
For this purpose, a depository
institution's or holding company's assets and certain specified off-balance
sheet commitments are assigned to four risk categories, each weighted
differently based on the level of credit risk that is ascribed to such assets or
commitments. A depository institution's or holding company's capital, in turn,
is divided into two tiers: core (“Tier 1”) capital, which includes common
equity, non-cumulative perpetual preferred stock, a limited amount of cumulative
perpetual preferred stock and related surplus (excluding auction rate issues)
and minority interests in equity accounts of consolidated subsidiaries, less
goodwill, certain identifiable intangible assets and certain other assets; and
supplementary (“Tier 2”) capital, which includes, among other items,
perpetual preferred stock not meeting the Tier 1 definition, mandatory
convertible securities, subordinated debt, and allowances for loan and lease
losses, subject to certain limitations, less certain required deductions. Bank
holding companies that engage in trading activities, whose trading activities
exceed specified levels, also are required to maintain capital for market risk.
Market risk includes changes in the market value of trading account, foreign
exchange, and commodity positions, whether resulting from broad market movements
(such as changes in the general level of interest rates, equity prices, foreign
exchange rates, or commodity prices) or from position specific factors. From
time to time, Comerica's trading activities may exceed specified regulatory
levels, in which case Comerica maintains additional capital for market risk as
required.
Comerica, like other bank holding
companies, currently is required to maintain Tier 1 and “total capital”
(the sum of Tier 1 and Tier 2 capital) equal to at least 4% and 8% of
its total risk-weighted assets (including certain off-balance-sheet items, such
as standby letters of credit), respectively. At December 31,
2014, Comerica met
both requirements, with Tier 1 and total capital equal to 10.50%
and 12.51%
of its total risk-weighted assets, respectively.
Comerica is also required to
maintain a minimum “leverage ratio” (Tier 1 capital to non-risk-adjusted
total assets) of 3% to 4%, depending upon criteria defined and assessed by the
FRB. Comerica's leverage ratio of 10.35% at December 31,
2014 reflects the
nature of Comerica's balance sheet and demonstrates a commitment to capital
adequacy. At December 31,
2014, Comerica Bank
had Tier 1 and total capital equal to 10.36% and 12.02% of its total risk-weighted
assets, respectively, and a leverage ratio of 10.20%.
Additional information on the
calculation of Comerica and its bank subsidiaries' Tier 1 capital, total capital
and risk-weighted assets is set forth in Note 20 of the Notes to Consolidated
Financial Statements located on pages F-99 through F-100
of the Financial
Section of this report. Additional information on the timing and nature of the
Basel III capital requirements is set forth below, under "Basel III: Regulatory
Capital and Liquidity Regime."
FDIC
Insurance Assessments
The FDIC Deposit Insurance Fund
(“DIF”) provides insurance coverage for certain deposits. Comerica's subsidiary
banks are subject to FDIC deposit insurance assessments to maintain the DIF. The
FDIC imposes a risk-based deposit premium assessment system, which was amended
pursuant to the Federal Deposit Insurance Reform Act of 2005 and further amended
by the Dodd-Frank Act. The Dodd-Frank Act also increased the DIF's minimum
reserve ratio and permanently increased general deposit insurance coverage from
$100,000 to $250,000. The final rule implementing revisions to the assessment
system became effective April 1, 2011. Under the risk-based deposit premium
assessment system, the assessment rates for an insured depository institution
are determined by an assessment rate calculator, which is based on a number of
elements to measure the risk each institution poses to the DIF. The assessment
rate is applied to total average assets less tangible equity. Under the current
system, premiums are assessed quarterly. For 2014, Comerica’s FDIC insurance
expense totaled $33 million. Our assessment rate could increase in the future
under the current system if, for example, criticized loans and/or other higher
risk assets increase or balance sheet liquidity decreases.
Enforcement
Powers of Federal and State Banking Agencies
The FRB and other federal and
state banking agencies have broad enforcement powers, including, without
limitation, and as prescribed to each agency by applicable law, the power to
terminate deposit insurance, impose substantial fines and other civil penalties
and appoint a conservator or receiver. Failure to comply with applicable laws or
regulations could subject Comerica or its banking subsidiaries, as well as
officers and directors of these organizations, to administrative sanctions and
potentially substantial civil and criminal penalties.
Capital
Purchase Program
On November 14, 2008,
Comerica participated in the United States Department of the Treasury (“U.S.
Treasury”) Capital Purchase Program by issuing to the U.S. Treasury, in exchange
for aggregate consideration of $2.25 billion, (i) 2.25 million
shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series F, no par
value (the “Series F Preferred Stock”), and (ii) a warrant to purchase
11,479,592 shares of Comerica's common stock at an exercise price of $29.40 per
share that expires on November 14, 2018 (the “Warrant”). Both the Series F
Preferred Stock and the Warrant were accounted for as components of Comerica's
regulatory Tier 1 capital and contained terms and limitations imposed by
the U.S. Treasury. On March 17, 2010, Comerica fully redeemed the Series F
Preferred Stock previously issued to the U.S. Treasury, and Comerica exited the
Capital Purchase Program. The Warrant was separated into 11,479,592 warrants to
purchase one share of Comerica's common stock at an exercise price of $29.40 per
share, and such warrants are now listed and traded on the NYSE. As a result of
participating in the Capital Purchase Program, Comerica was subject to certain
executive compensation and corporate governance standards promulgated by the
U.S. Treasury prior to redemption, which no longer applied to Comerica following
the redemption.
The
Dodd-Frank Wall Street Reform and Consumer Protection Act and Other Recent
Legislative and Regulatory Developments
The recent financial crisis has
led to significant changes in the legislative and regulatory landscape of the
financial services industry, including the overhaul of that landscape with the
passage of the Dodd-Frank Act, which was signed into law on July 21, 2010.
Provided below is an overview of key elements of the Dodd-Frank Act relevant to
Comerica, as well as other recent legislative and regulatory developments. The
estimates of the impact on Comerica discussed below are based on information
currently available and, if applicable, are subject to change until final
rulemaking is complete.
Incentive-Based
Compensation. In
June 2010, the FRB, OCC and FDIC issued comprehensive final guidance on
incentive compensation policies intended to ensure that the incentive
compensation policies of banking organizations do not undermine the safety and
soundness of such organizations by encouraging excessive risk-taking. The
guidance, which covers senior executives as well as other employees who, either
individually or as part of a group, have the ability to expose the banking
organization to
material amounts of risk, is
based upon the key principles that a banking organization's incentive
compensation arrangements (i) should provide employees incentives that
appropriately balance risk and financial results in a manner that does not
encourage employees to expose their organizations to imprudent risk; (ii) should
be compatible with effective controls and risk-management; and (iii) should be
supported by strong corporate governance, including active and effective
oversight by the organization's board of directors. Banking organizations are
expected to review regularly their incentive compensation arrangements based on
these three principles. Where there are deficiencies in the incentive
compensation arrangements, they should be promptly addressed. Enforcement
actions may be taken against a banking organization if its incentive
compensation arrangements, or related risk-management control or governance
processes, pose a risk to the organization's safety and soundness, particularly
if the organization is not taking prompt and effective measures to correct the
deficiencies. Comerica is subject to this final guidance and, similar to other
large banking organizations, has been subject to a continuing review of
incentive compensation policies and practices by representatives of the FRB, the
Federal Reserve Bank of Dallas and the Texas Department of Banking since 2011.
As part of that review, Comerica has undertaken a thorough analysis of all the
incentive compensation programs throughout the organization, the individuals
covered by each plan and the risks inherent in each plan’s design and
implementation. Comerica has determined that risks arising from employee
compensation plans are not reasonably likely to have a material adverse effect
on Comerica. Further, it is the Company’s intent to continue to evolve our
processes going forward by monitoring regulations and best practices for sound
incentive compensation.
On April 14, 2011, the FRB, OCC
and several other federal financial regulators issued a joint proposed
rulemaking to implement Section 956 of the Dodd-Frank Act. Section 956
directed regulators to jointly prescribe regulations or guidelines prohibiting
incentive-based payment arrangements, or any feature of any such arrangement, at
covered financial institutions that encourage inappropriate risks by providing
excessive compensation or that could lead to a material financial loss. This
proposal supplements the final guidance issued by the banking agencies in June
2010. Consistent with the Dodd-Frank Act, the proposed rule would not apply to
institutions with total consolidated assets of less than $1 billion, and would
impose heightened standards for institutions with $50 billion or more in total
consolidated assets, which includes Comerica. For these larger institutions, the
proposed rule would require that at least 50 percent of annual incentive-based
payments be deferred over a period of at least three years for designated
executives. Moreover, boards of directors of these larger institutions would be
required to identify employees who individually have the ability to expose the
institution to possible losses that are substantial in relation to the
institution's size, capital or overall risk tolerance, and to determine that the
incentive compensation for these employees appropriately balances risk and
rewards according to enumerated standards. Comerica is monitoring the
development of this rule.
Basel
III: Regulatory Capital and Liquidity Regime.
In December 2010, the Basel Committee on Banking Supervision (the “Basel
Committee”) issued a framework for strengthening international capital and
liquidity regulation (“Basel III”). In July 2013, U.S. banking regulators issued
a final rule for the U.S. adoption of the Basel III regulatory capital
framework. The regulatory framework includes a more conservative definition of
capital, two new capital buffers - a conservation buffer and a countercyclical
buffer, new and more stringent risk weight categories for assets and off-balance
sheet items, and a supplemental leverage ratio. As a banking organization
subject to the standardized approach, the rules are effective for Comerica on
January 1, 2015, with certain transition provisions fully phased in on January
1, 2018.
According to the rule, Comerica
will be subject to the capital conservation buffer of 2.5 percent, when fully
phased in, to avoid restrictions on capital distributions and discretionary
bonuses. However, the rules do not subject Comerica to the capital
countercyclical buffer of up to 2.5 percent or the supplemental leverage ratio.
Comerica estimates the December 31,
2014 Tier 1 and Tier
1 common risk-based ratio would be 10.3 percent if calculated under the
final rule, as fully phased in, excluding most elements of accumulated other
comprehensive income from regulatory capital. Comerica's December 31,
2014 estimated Tier
1 common and Tier 1 capital ratios exceed the minimum required by the final rule
(7 percent and 8.5 percent, respectively, including the fully phased-in capital
conservation buffer). For a reconcilement of these non-GAAP financial measures,
see page F-41 of the Financial Section of this report under the caption
"Supplemental Financial Data."
On December 9, 2014, U.S. banking
regulators proposed a rule that would establish an additional capital buffer for
banking organizations deemed systemically important to the global financial
system (globally systemically important bank holding companies, or “G-SIB”).
Comerica would not be considered a G-SIB under the rule as proposed.
On September 3, 2014, U.S.
banking regulators adopted the Liquidity Coverage Ratio ("LCR") rule, which set
for U.S. banks the minimum liquidity measure established under the Basel III
liquidity framework. Under the final rule, Comerica is subject to a modified LCR
standard, which requires a financial institution to hold a minimum level of
high-quality, liquid assets ("HQLA") to fully cover net cash outflows under a
30-day systematic liquidity stress scenario. The rule is effective for Comerica
on January 1, 2016. During the transition year, 2016, Comerica will be required
to maintain a minimum LCR of 90 percent. Beginning January 1, 2017, and
thereafter, the minimum required LCR will be 100 percent. Comerica continues to
evaluate the impact of the rule; however, we expect to meet the final
requirements adopted by U.S. banking regulators within the required timetable.
To reach full compliance and provide a buffer for normal volatility in balance
sheet dynamics, Comerica expects to add additional HQLA, which may be funded
with additional debt, in the future. Comerica does not currently expect
compliance with the LCR rule will have a significant impact on net interest
income.
The Basel III liquidity framework
includes a second minimum liquidity measure, the Net Stable Funding Ratio
("NSFR"), which requires the amount of available longer-term, stable sources of
funding to be at least 100 percent of the required amount of longer-term stable
funding over a one-year period. The Basel Committee on Banking Supervision is in
the process of reviewing the proposed NSFR standard and evaluating its impact on
the banking system. U.S. banking regulators have announced that they expect to
issue proposed rulemaking to implement the NFSR in advance of its scheduled
global implementation in 2018. While uncertainty exists in the final form and
timing of the U.S. rule implementing the NSFR and whether or not Comerica will
be subject to the full requirements, Comerica is closely monitoring the
development of the rule.
Interchange
Fees. On July 20,
2011, the FRB published final rules pursuant to the Dodd-Frank Act establishing
the maximum permissible interchange fee that an issuer may receive for an
electronic debit transaction as the sum of 21 cents per transaction and 5 basis
points multiplied by the value of the transaction and prohibiting network
exclusivity arrangements and routing restrictions. Comerica is subject to the
final rules. In July 2013, a federal district court invalidated the FRB's
interchange fee rules. The FRB's appeal of the court’s ruling resulted in the
U.S. Circuit Court of Appeals for the District of Columbia overruling the
district court, reinstating the final rule as previously issued. On January 20,
2015, the U.S. Supreme Court denied a further appeal.
Supervision
and Regulation Assessment.
Section 318 of the Dodd-Frank Act authorizes the federal banking agencies to
assess fees against bank holding companies with total consolidated assets in
excess of $50 billion equal to the expenses necessary or appropriate in order to
carry out their supervision and regulation of those companies. We paid $1.5
million in 2014 with respect to the 2013 assessment year and accrued another
$1.5 million for the 2014 assessment year.
The
Volcker Rule. The
federal banking agencies and the SEC published approved joint final regulations
to implement the Volcker Rule on December 10, 2013. The Volcker Rule generally
prohibits banking entities from engaging in proprietary trading and from owning
and sponsoring "covered funds" (e.g. hedge funds and private equity funds). The
final regulations adopt a multi-faceted approach to implementing the Volcker
Rule prohibitions that relies on: (i) detailed descriptions of prohibited and
permitted activities; (ii) detailed compliance requirements; and (iii) for
banking entities with large volumes of trading activity, detailed quantitative
analysis and reporting obligations. In addition to rules implementing the core
prohibitions and exemptions (e.g. underwriting, market-making related
activities, risk-mitigating hedging and trading in certain government
obligations) of the Volcker Rule, the regulations also include two appendices
devoted to record-keeping and reporting requirements, including numerous
quantitative data reporting obligations for banking entities with significant
trading activities (Appendix A) and enhanced compliance requirements for banking
entities with significant trading or covered fund activities (Appendix B). The
final rule was effective April 1, 2014. The Volcker Rule generally requires full
compliance with the new restrictions by July 21, 2015; however, the FRB has
recently extended the conformance period to July 21, 2017 for covered funds that
were in place prior to December 31, 2013. Comerica expects to meet the final
requirements adopted by regulators within the applicable regulatory timelines.
Additional information on Comerica's portfolio of indirect (through funds)
private equity and venture capital investments is set forth in
Note 1
of the Notes to Consolidated Financial Statements located on page F-51 of
the Financial Section of this report.
Annual
Capital Plans and Stress Tests.
Comerica is subject to the FRB’s annual Comprehensive Capital Analysis and
Review (CCAR) process, as well as the Dodd-Frank Act Stress Testing (DFAST)
requirements. As part of the CCAR process, the FRB undertakes a supervisory
assessment of the capital adequacy of bank holding companies (BHCs), including
Comerica, that have $50 billion or more in total consolidated assets. This
capital adequacy assessment is based on a review of a comprehensive capital plan
submitted by each participating BHC to the FRB that describes the company’s
planned capital actions during the nine quarter review period, as well as the
results of stress tests conducted by both the company and the FRB under
different hypothetical macro-economic scenarios, including a supervisory
baseline and an adverse and a severely adverse scenario provided by the FRB.
After completing its review, the FRB may object or not object to the company’s
proposed capital actions, such as plans to pay or increase common stock
dividends, reinstate or increase common stock repurchase programs, or redeem
preferred stock or other regulatory capital instruments. In connection with the
2014 CCAR, Comerica submitted its 2014 capital plan to the FRB on January 3,
2014; on March 26, 2014, Comerica announced that the FRB had completed its CCAR
2014 capital plan review and did not object to the capital plan or capital
distributions contemplated in the plan. Also as required, Comerica submitted its
CCAR 2015 capital plan to the FRB on January 5, 2015 and expects to receive the
results of the FRB's review of the plan in March 2015.
As part of the CCAR and DFAST
process, both the FRB and Comerica release certain revenue, loss and capital
results from their stress testing exercises, generally in March of each year.
FRB regulations also require that Comerica and other large bank holding
companies conduct a separate mid-year stress test using financial data as of
March 31st and three company-derived macro-economic scenarios (base, adverse and
severely adverse) and publish a summary of the results under the severely
adverse scenario in September. On March 20, 2014 and September 15, 2014,
Comerica released the results of its company-run annual and mid-year stress
tests, respectively, which are available in the Investor Relations section of
Comerica's website at investor.comerica.com, on the “Dodd-Frank Act Stress Test
Results” page under "Financial Reports." Similar timelines will be expected for
the 2015 mid-year stress tests.
In October 2014, the FRB modified
the timing of the capital planning cycle. For 2016, the annual capital plan will
be moved to an April submission (instead of January) and the mid-year stress
test will be moved to an October submission (instead
of July). Accordingly, for the
2015 Capital Plan submission, the FRB’s determination regarding capital
distributions will extend over a period of five quarters, 2Q 2015 - 2Q 2016, in
order to accommodate the shift in the capital plan cycle in 2016.
Enhanced
Prudential Requirements.
The Dodd-Frank Act created the Financial Stability Oversight Council (“FSOC”)
to coordinate efforts of the primary U.S. financial regulatory agencies in
establishing regulations to address financial stability concerns and to make
recommendations to the FRB as to enhanced prudential standards that must apply
to large, interconnected bank holding companies and nonbank financial companies
supervised by the FRB under the Dodd-Frank Act, including capital, leverage,
liquidity and risk management requirements.
On February 18, 2014, the FRB
issued its final regulations to implement the enhanced prudential and
supervisory requirements mandated by the Dodd-Frank Act. The final regulations
address enhanced risk-based capital and leverage requirements, enhanced
liquidity requirements, enhanced risk management and risk committee
requirements, single-counterparty credit limits, semiannual stress tests (as
described above under "Annual Capital Plans and Stress Tests"), and a
debt-to-equity limit for companies determined to pose a grave threat to
financial stability. They are intended to allow regulators to more effectively
supervise large bank holding companies and nonbank financial firms whose failure
could impact the stability of the US financial system, and generally build on
existing US and international regulatory guidance. The proposal also takes a
multi-stage or phased approach to many of the requirements (such as the capital
and liquidity requirements). Most of these requirements apply to Comerica
because it has consolidated assets of more than $50 billion. Comerica has or
will implement all requirements of the new rules within regulatory
timelines.
Resolution
(Living Will) Plans.
Section 165(d) of the Dodd-Frank Act requires bank holding companies with total
consolidated assets of $50 billion or more (“covered companies”) to prepare and
submit to the federal banking agencies (e.g., FRB and FDIC) a plan for their
rapid and orderly resolution under the U.S. Bankruptcy Code. Covered companies,
such as Comerica, with less than $100 billion in total nonbank assets were
required to submit their initial plans by December 31, 2013. In addition,
Section 165(d) requires FDIC-insured depository institutions (like Comerica
Bank) with assets of $50 billion or more to develop, maintain, and periodically
submit plans outlining how the FDIC would resolve it through the FDIC's
resolution powers under the Federal Deposit Insurance Act. The federal banking
agencies have issued rules to implement these requirements. In addition, those
rules require the filing of annual updates to the plans. Both Comerica and
Comerica Bank filed their respective initial and updated resolution plans by the
required due dates. The resolution plans are currently under review by the FRB
and FDIC.
Section
611 and Title VII of the Dodd-Frank Act.
Section 611 of the Dodd-Frank Act prohibits a state bank from engaging in
derivative transactions unless the lending limit laws of the state in which the
bank is chartered take into consideration exposure to derivatives. Section 611
does not provide how state lending limit laws must factor in derivatives. The
Texas Finance Commission has adopted an administrative rule meeting the
requirements of Section 611. Accordingly, Comerica Bank may engage in derivative
transactions, as permitted by applicable law.
Title VII of the Dodd-Frank Act
establishes a comprehensive framework for over-the-counter (“OTC”) derivatives
transactions. The structure for derivatives set forth in the Dodd-Frank Act is
intended to promote, among other things, exchange trading and centralized
clearing of swaps and security-based swaps, as well as greater transparency in
the derivatives markets and enhanced monitoring of the entities that use these
markets. In this regard, the CFTC and SEC have issued several regulatory
proposals, some of which are now effective or will become effective in 2015.
The SEC and CFTC have jointly
adopted rules further defining the terms “swap,” “security-based swap,”
“security-based swap agreement,” and have also adopted final joint rules
defining the terms “swap dealer,” “security-based swap dealer,” “major swap
participant,” and “major security-based swap participant.” Comerica has
determined that neither it, nor its subsidiaries, are within the definition of
“swap dealer” or “major swap participant,” but some portions of the Title VII
regulations apply nonetheless. One of these regulations centers on limiting
certain OTC transactions to “eligible contract participants.” This regulation
may have an impact on the small business customers of Comerica's banking
subsidiaries by making such customers ineligible for swap derivatives as hedging
in their loan agreements.
Consumer
Finance Regulations.
The Dodd-Frank Act made several changes to consumer finance laws and
regulations. It contained provisions that have weakened the federal preemption
rules applicable for national banks and give state attorneys general the ability
to enforce federal consumer protection laws. Additionally, the Dodd-Frank Act
created the Consumer Financial Protection Bureau (“CFPB“), which has a broad
rule-making authority for a wide range of consumer protection laws that apply to
all banks and savings institutions, including the authority to prohibit “unfair,
deceptive or abusive” acts and practices, and possesses examination and
enforcement authority over all banks and savings institutions with more than
$10 billion in assets. In this regard, the CFPB has commenced issuing
several new rules to implement various provisions of the Dodd-Frank Act that
were specifically identified as being enforced by the CFPB, as well as those
specified for supervisory and enforcement authority for very large depository
institutions and non-depository (nonbank) entities. Comerica is subject to CFPB
foreign remittance rules and home mortgage lending rules, in addition to certain
other CFPB rules.
The foreign remittance rules fall
under Section 1073 of the Dodd-Frank Act. The CFPB issued new regulations
amending Regulation E, which implements the Electronic Fund Transfer Act,
effective October 28, 2013. The regulations were designed to
provide protections to consumers
who transfer funds to recipients located in countries outside the United States
(customer foreign remittance transfers). In general, the regulation requires
remittance transfer providers, such as Comerica, to disclose to a consumer the
exchange rate, fees, and amount to be received by the recipient when the
consumer sends a remittance transfer. Although Comerica had implemented the
model disclosures provided in Appendix A to the final rule, on September 18,
2014, the CFPB extended the compliance exception period for the rule's new
disclosure requirements to July 21, 2020.
On July 17, 2014, the CFPB issued
an interpretive rule clarifying that where a successor-in-interest (successor)
who has previously acquired title to a dwelling agrees to be added as obligor or
substituted for the existing obligor on a consumer credit transaction secured by
that dwelling, the creditor's written acknowledgment of the successor as obligor
is not subject to the CFPB’s Ability-to-Repay Rule because such a transaction
does not constitute an assumption as defined by Regulation Z. In addition,
the CFPB issued other Regulation Z-related rules that had little or no effect on
Comerica’s operations as it has outsourced most of its consumer loan origination
and servicing.
On November 13, 2014, the CFPB
issued a proposed regulation establishing new consumer protections and
disclosure requirements on prepaid accounts, including (i) the provision of
either periodic statements or free online account information access; (ii) new
account error and unauthorized transaction rights; (iii) new “Know Before You
Owe” prepaid account disclosures; (iv) public disclosure of account agreements
for prepaid accounts and (v) credit protection for linked credit
accounts.
Comerica is monitoring the
development of these new rules and will position itself to be in compliance with
any new requirements within the established regulatory time frames.
Truth
in Lending Act. As a
result of recent judicial decisions, borrowers are permitted to rescind their
mortgage pursuant to the Truth in Lending Act by giving notice of their intent
to rescind within three years of closing, and do not need to file suit to
exercise this right. This decision could impact Comerica’s indemnity rights
with its mortgage servicing vendor, as well as consumer closed-end mortgage
loans held in Comerica’s portfolio; however, such impact is not anticipated to
be significant.
FDIC
Guidance on Brokered Deposits.
On January 5, 2015, the FDIC issued guidance in the form of “Frequently Asked
Questions” to promote consistency by insured depository institutions in
identifying, accepting, and reporting brokered deposits. All insured
depository institutions (including those that are well capitalized) must report
brokered deposits in their Consolidated Reports of Condition and Income (Call
Reports). Comerica is currently evaluating the impact of these FAQs to
various business units throughout the organization.
Flood
Insurance Reform.
The Biggert-Waters Flood Insurance Reform Act of 2012 (“Biggert-Waters Act”), as
amended by the Homeowner Flood Insurance Affordability Act of 2014, modified the
National Flood Insurance Program by: (i) increasing the maximum civil penalty
for Flood Disaster Protection Act violations to $2,000 and eliminating the
annual penalty cap; (ii) requiring certain lenders (including Comerica) to
escrow premiums and fees for flood insurance on residential improved real
estate; (iii) directing lenders to accept private flood insurance and to notify
borrowers of its availability; (iv) amending the force placement requirement
provisions; and (v) permitting lenders to charge borrowers costs for lapses in
or insufficient coverage. These requirements will impact Comerica loans and
extensions of credit secured with residential improved real estate. The civil
penalty and force placed insurance provisions were effective immediately.
On October 21, 2014, certain
federal agencies issued a joint proposed rule exempting: (1) detached structures
that are not used as a residence from the mandatory flood insurance purchase
requirements and (2) HELOCs, business purpose loans, nonperforming loans, loans
with terms of less than one year, loans for co-ops and condominiums,
and subordinate loans on the same property from the mandatory escrow of
flood insurance premium requirements. Additionally, the proposed rule would
require Comerica to offer the option to escrow flood insurance premiums starting
on January 1, 2016. The federal agencies will address the remaining provisions
of the Biggert-Waters Act in a separate rulemaking. Comerica will continue to
monitor the development and implementation of these rules.
Future
Legislation and Regulatory Measures
The environment in which
financial institutions will operate after the recent financial crisis, including
legislative and regulatory changes affecting capital, liquidity, supervision,
permissible activities, corporate governance and compensation, and changes in
fiscal policy, may have long-term effects on the business model and
profitability of financial institutions that cannot be foreseen. Moreover, in
light of recent events and current conditions in the U.S. financial markets and
economy, Congress and regulators have continued to increase their focus on the
regulation of the financial services industry. Comerica cannot accurately
predict whether legislative changes will occur or, if they occur, the ultimate
effect they would have upon the financial condition or results of operations of
Comerica.
UNDERWRITING
APPROACH
The loan portfolio is a primary
source of profitability and risk, so proper loan underwriting is critical to
Comerica's long-term financial success. Comerica extends credit to businesses,
individuals and public entities based on sound lending principles and consistent
with prudent banking practice. During the loan underwriting process, a
qualitative and quantitative analysis of
potential credit facilities is
performed, and the credit risks associated with each relationship are evaluated.
Important factors considered as part of the underwriting process for new loans
and loan renewals include:
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People: Including the
competence, integrity and succession planning of
customers. |
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Purpose: The legal, logical
and productive purposes of the credit
facility. |
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Payment: Including the
source, timing and probability of
payment. |
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Protection: Including
obtaining alternative sources of repayment, securing the loan, as
appropriate, with collateral and/or third-party guarantees and ensuring
appropriate legal documentation is
obtained. |
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Perspective: The
risk/reward relationship and pricing elements (cost of funds; servicing
costs; time value of money; credit risk). |
Comerica prices credit facilities
to reflect risk, the related costs and the expected return, while maintaining
competitiveness with other financial institutions. Loans with variable and fixed
rates are underwritten to achieve expected risk-adjusted returns on the credit
facilities and for the full relationship including the borrower's ability to
repay the principal and interest based on such rates.
Credit
Administration
Comerica maintains a Credit
Administration Department (“Credit Administration”) which is responsible for the
oversight and monitoring of our loan portfolio. Credit Administration assists
with underwriting by providing objective financial analysis, including an
assessment of the borrower's business model, balance sheet, cash flow and
collateral. Each borrower relationship is assigned an internal risk rating by
Credit Administration. Further, Credit Administration updates the assigned
internal risk rating for every borrower relationship as new information becomes
available, either as a result of periodic reviews of the credit quality or as a
result of a change in borrower performance. The goal of the internal risk rating
framework is to improve Comerica's risk management capability, including its
ability to identify and manage changes in the credit risk profile of its
portfolio, predict future losses and price the loans appropriately for
risk.
Credit
Policy
Comerica maintains a
comprehensive set of credit policies. Comerica's credit policies provide
individual relationship managers, as well as loan committees, approval
authorities based on our internal risk rating system and establish maximum
exposure limits based on risk ratings and Comerica's legal lending limit. Credit
Administration, in conjunction with the businesses units, monitors compliance
with the credit policies and modifies the existing policies as necessary. New or
modified policies/guidelines require approval by the Strategic Credit Committee,
chaired by Comerica's Chief Credit Officer and comprising senior credit, market
and risk management executives.
Commercial
Loan Portfolio
Commercial loans are underwritten
using a comprehensive analysis of the borrower's operations. The underwriting
process includes an analysis of some or all of the factors listed
below:
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The borrower's business
model. |
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Periodic review of
financial statements including financial statements audited by an
independent certified public accountant when
appropriate. |
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The pro-forma financial
condition including financial
projections. |
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The borrower's sources and
uses of funds. |
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The borrower's debt service
capacity. |
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The guarantor's financial
strength. |
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A comprehensive review of
the quality and value of collateral, including independent third-party
appraisals of machinery and equipment and commercial real estate, as
appropriate, to determine the advance
rates. |
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Physical inspection of
collateral and audits of receivables, as
appropriate. |
For additional information
specific to our Energy loan portfolio, please see the caption, “Energy Lending”
on pages F-28 through F-29 of the Financial Section of this
report.
Commercial
Real Estate (CRE) Loan Portfolio
Comerica's CRE loan portfolio
consists of real estate construction and commercial mortgage loans and includes
both loans to real estate developers and loans secured by owner-occupied real
estate. Comerica's CRE loan underwriting policies are
consistent with the approach
described above and provide maximum loan-to-value ratios that limit the size of
a loan to a maximum percentage of the value of the real estate collateral
securing the loan. The loan-to-value percentage varies by the type of collateral
and is limited by advance rates established by our regulators. Our loan-to-value
limitations are, in certain cases, more restrictive than those required by
regulators and are influenced by other risk factors such as the financial
strength of the borrower or guarantor, the equity provided to the project and
the viability of the project itself. CRE loans generally require cash equity.
CRE loans are normally originated with full recourse or limited recourse to all
principals and owners. There are limitations to the size of a single project
loan and to the aggregate dollar exposure to a single guarantor.
Consumer and
Residential Mortgage Loan Portfolios
Comerica's consumer and
residential mortgage loans are originated consistent with the underwriting
approach described above, but also includes an assessment of each borrower's
personal financial condition, including a review of credit reports and related
FICO scores (a type of credit score used to assess an applicant's credit risk)
and verification of income and assets. Comerica does not originate subprime loan
programs. Although a standard industry definition for subprime loans (including
subprime mortgage loans) does not exist, Comerica defines subprime loans as
specific product offerings for higher risk borrowers, including individuals with
one or a combination of high credit risk factors. These credit factors include
low FICO scores, poor patterns of payment history, high debt-to-income ratios
and elevated loan-to-value. We generally consider subprime FICO scores to be
those below 620 on a secured basis (excluding loans with cash or near-cash
collateral and adequate income to make payments) and below 660 for unsecured
loans. Residential mortgage loans retained in the portfolio are largely
relationship based. The remaining loans are typically eligible to be sold on the
secondary market. Adjustable rate loans are limited to standard conventional
loan programs.
EMPLOYEES
As of December 31,
2014, Comerica and
its subsidiaries had 8,499 full-time and 616 part-time
employees.
AVAILABLE
INFORMATION
Comerica maintains an Internet
website at www.comerica.com where the Annual Report on
Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K and all amendments to those reports are available without charge,
as soon as reasonably practicable after those reports are filed with or
furnished to the SEC. The Code of Business Conduct and Ethics for Employees, the
Code of Business Conduct and Ethics for Members of the Board of Directors and
the Senior Financial Officer Code of Ethics adopted by Comerica are also
available on the Internet website and are available in print to any shareholder
who requests them. Such requests should be made in writing to the Corporate
Secretary at Comerica Incorporated, Comerica Bank Tower, 1717 Main Street, MC
6404, Dallas, Texas 75201.
In addition, pursuant to
regulations adopted by the FRB, Comerica will be required to make additional
regulatory capital-related disclosures beginning in 2015. Under these
regulations, Comerica may be able to satisfy at least a portion of these
requirements through postings on its website, and Comerica has done so and
expects to continue to do so without also providing disclosure of this
information through filings with the SEC.
Where we have included web
addresses in this report, such as our web address and the web address of the
SEC, we have included those web addresses as inactive textual references only.
Except as specifically incorporated by reference into this report, information
on those websites is not part hereof.
Item 1A. Risk
Factors.
This report includes
forward-looking statements as defined in the Private Securities Litigation
Reform Act of 1995. In addition, Comerica may make other written and oral
communications from time to time that contain such statements. All statements
regarding Comerica's expected financial position, strategies and growth
prospects and general economic conditions Comerica expects to exist in the
future are forward-looking statements. The words, “anticipates,” “believes,”
“feels,” “expects,” “estimates,” “seeks,” “strives,” “plans,” “intends,”
“outlook,” “forecast,” “position,” “target,” “mission,” “assume,” “achievable,”
“potential,” “strategy,” “goal,” “aspiration,” "opportunity," "initiative,"
“outcome,” “continue,” “remain,” “maintain,” "on course," “trend,” “objective,”
"looks forward," "projects," "models" and variations of such words and similar
expressions, or future or conditional verbs such as “will,” “would,” “should,”
“could,” “might,” “can,” “may” or similar expressions, as they relate to
Comerica or its management, are intended to identify forward-looking
statements.
Comerica cautions that
forward-looking statements are subject to numerous assumptions, risks and
uncertainties, which change over time. Forward-looking statements speak only as
of the date the statement is made, and Comerica does not undertake to update
forward-looking statements to reflect facts, circumstances, assumptions or
events that occur after the date the forward-looking statements are made. Actual
results could differ materially from those anticipated in forward-looking
statements and future results could differ materially from historical
performance.
In addition to factors mentioned
elsewhere in this report or previously disclosed in Comerica's SEC reports
(accessible on the SEC's website at www.sec.gov or on Comerica's website at
www.comerica.com), the factors contained below,
among others,
could cause actual results to
differ materially from forward-looking statements, and future results could
differ materially from historical performance.
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General
political, economic or industry conditions, either domestically or
internationally, may be less favorable than
expected. |
Local, domestic, and
international economic, political and industry specific conditions affect the
financial services industry, directly and indirectly. Conditions such as or
related to inflation, recession, unemployment, volatile interest rates,
international conflicts and other factors, such as real estate values, energy
prices, state and local municipal budget deficits, the recent European debt
crisis and government spending and the U.S. national debt, outside of our
control may, directly and indirectly, adversely affect Comerica. As has been the
case with the impact of recent economic conditions, economic downturns could
result in the delinquency of outstanding loans, which could have a material
adverse impact on Comerica's earnings.
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Governmental
monetary and fiscal policies may adversely affect the financial services
industry, and therefore impact Comerica's financial condition and results
of operations. |
Monetary and fiscal policies of
various governmental and regulatory agencies, in particular the FRB, affect the
financial services industry, directly and indirectly. The FRB regulates the
supply of money and credit in the U.S. and its monetary and fiscal policies
determine in a large part Comerica's cost of funds for lending and investing and
the return that can be earned on such loans and investments. Changes in such
policies, including changes in interest rates, will influence the origination of
loans, the value of investments, the generation of deposits and the rates
received on loans and investment securities and paid on deposits. Changes in
monetary and fiscal policies are beyond Comerica's control and difficult to
predict. Comerica's financial condition and results of operations could be
materially adversely impacted by changes in governmental monetary and fiscal
policies.
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Changes
in regulation or oversight may have a material adverse impact on
Comerica's operations. |
Comerica is subject to extensive
regulation, supervision and examination by the U.S. Treasury, the Texas
Department of Banking, the FDIC, the FRB, the SEC, FINRA and other regulatory
bodies. Such regulation and supervision governs the activities in which Comerica
may engage. Regulatory authorities have extensive discretion in their
supervisory and enforcement activities, including the imposition of restrictions
on Comerica's operations, investigations and limitations related to Comerica's
securities, the classification of Comerica's assets and determination of the
level of Comerica's allowance for loan losses. Any change in such regulation and
oversight, whether in the form of regulatory policy, regulations, legislation or
supervisory action, may have a material adverse impact on Comerica's business,
financial condition or results of operations.
In particular, Congress and other
regulators have significantly increased their focus on the regulation of the
financial services industry. Their actions include, but are not limited to, the
passage of the Dodd-Frank Act, many parts of which are now in effect, and the
adoption of the Basel III framework in the U.S. For additional information on
these actions, please see “The Dodd-Frank Wall Street Reform and Consumer
Protection Act and Other Recent Legislative and Regulatory Developments” section
of the “Supervisory and Regulation” section of this report. Many provisions in
the Dodd-Frank Act and the Basel III framework remain subject to regulatory
rule-making and/or implementation, the effects of which are not yet known.
Additionally, Comerica may be
subject to other regulatory actions that are currently under consideration, or
may be under consideration in the future. For example, as discussed in the “The
Dodd-Frank Wall Street Reform and Consumer Protection Act and Other Recent
Legislative and Regulatory Developments” section of the “Supervisory and
Regulation” section of this report, Comerica is not subject to the additional
capital buffer for banking organizations deemed systemically important to the
global financial system. However, should U.S. banking regulators establish an
additional capital buffer for banking organizations deemed systemically
important to the U.S. financial system, Comerica may be subject to an additional
buffer. Further, the current administration proposed in January 2010 a fee on
those financial institutions that benefited from recent actions taken by the
U.S. government to stabilize the financial system. Calls for that fee were
renewed during the 2013 federal budget discussions. Most recently, the
administration's 2015 budget proposal would impose a 7 basis point tax on U.S.
financial firms with assets over $50 billion, with the goal of such proposal to
penalize financial institutions for being overly leveraged. If such fee or
another similar fee were implemented, Comerica would likely be subject to its
terms.
The effects of such legislation
and regulatory actions on Comerica cannot reliably be fully determined at this
time. We can neither predict when or whether future regulatory or legislative
reforms will be enacted nor what their contents will be. The impact of any
future legislation or regulatory actions on Comerica's businesses or operations
cannot be reliably determined at this time, and such impact may adversely affect
Comerica.
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Comerica
must maintain adequate sources of funding and liquidity to meet regulatory
expectations, support its operations and fund outstanding
liabilities. |
Comerica’s liquidity and ability
to fund and run its business could be materially adversely affected by a variety
of conditions and factors, including financial and credit market disruptions and
volatility or a lack of market or customer confidence in financial markets in
general, which may result in a loss of customer deposits or outflows of cash or
collateral and/or ability to access capital markets on favorable terms.
Other conditions and factors that
could materially adversely affect Comerica’s liquidity and funding include a
lack of market or customer confidence in, or negative news about, Comerica or
the financial services industry generally which also may result in a loss of
deposits and/or negatively affect the ability to access the capital markets; the
loss of customer deposits to alternative investments; counterparty availability;
interest rate fluctuations; general economic conditions; and the legal,
regulatory, accounting and tax environments governing our funding transactions.
Many of the above conditions and factors may be caused by events over which
Comerica has little or no control. There can be no assurance that significant
disruption and volatility in the financial markets will not occur in the future.
Further, Comerica's customers may be adversely impacted by such conditions,
which could have a negative impact on Comerica's business, financial condition
and results of operations.
In September 2014, U.S. banking
regulators issued a final rule implementing a quantitative liquidity requirement
in the U.S. generally consistent with the Liquidity Coverage Ratio (LCR) minimum
liquidity measure established under the Basel III liquidity framework. Under the
rule, Comerica will be required to hold a minimum level of high-quality, liquid
assets (HQLA) to fully cover modified net cash outflows under a 30-day
systematic liquidity stress scenario. The rule is effective for Comerica on
January 1, 2016. During the transition year, 2016, Comerica will be required to
maintain a minimum LCR of 90 percent. Beginning January 1, 2017, and thereafter,
the minimum required LCR will be 100 percent. To reach full compliance and
provide a buffer for normal volatility in balance sheet dynamics, Comerica
expects to add additional HQLA, which may be funded with additional debt, in the
future. For more information regarding the LCR, please see the “Supervision and
Regulation” section of this report. The inability to access capital markets
funding sources as needed could adversely impact our level of
regulatory-qualifying capital and ability to comply with the LCR
framework.
Further, if Comerica is unable to
continue to fund assets through customer bank deposits or access funding sources
on favorable terms or if Comerica suffers an increase in borrowing costs or
otherwise fails to manage liquidity effectively, Comerica’s liquidity, operating
margins, financial condition and results of operations may be materially
adversely affected.
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Compliance
with more stringent capital and liquidity requirements may adversely
affect Comerica. |
New capital requirements in
connection with Basel III and the requirements of the Dodd-Frank Act applicable
to Comerica as a bank holding company as well as to Comerica's subsidiary banks
will have an effect on Comerica. Additional information on the regulatory
capital requirements applicable to Comerica is set forth in the “Supervision and
Regulation” section of this report. These requirements, and any other new laws
or regulations, could adversely affect Comerica's ability to pay dividends or
make share repurchases, or could require Comerica to reduce business levels or
to raise capital, including in ways that may adversely affect its results of
operations or financial condition and/or existing shareholders.
The liquidity requirements
applicable to Comerica as a bank holding company as well as to our subsidiary
banks are in the process of being substantially revised, in connection with
recent supervisory guidance, Basel III and the requirements of the Dodd-Frank
Act. Additional information on the liquidity requirements applicable to Comerica
is set forth in the “Supervision and Regulation” section of this report. In
light of these or other new legal and regulatory requirements, Comerica and our
subsidiary banks are, and will be in the future, required to satisfy additional,
more stringent, liquidity standards, including, for the first time, quantitative
standards for liquidity management.
Further, our regulators may also
require us to satisfy additional, more stringent capital adequacy and liquidity
standards than those specified as part of the Dodd-Frank Act and the FRB's
proposed and final rules implementing Basel III, or comply with the requirements
of these standards earlier than might otherwise be required, in connection with
the annual CCAR process.
The ultimate impact of the new
capital and liquidity standards cannot be fully determined at this time and will
depend on a number of factors, including treatment and implementation by the
U.S. banking regulators. However, maintaining higher levels of capital and
liquidity may reduce Comerica's profitability and otherwise adversely affect its
business, financial condition, or results of operations.
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Declines
in the businesses or industries of Comerica's customers could cause
increased credit losses or decreased loan balances, which could adversely
affect Comerica. |
Comerica's business customer base
consists, in part, of customers in volatile businesses and industries such as
the energy industry, the automotive production industry and the real estate
business. These industries are sensitive to global economic
conditions, supply chain factors
and/or commodities prices. Any decline in one of those customers' businesses or
industries could cause increased credit losses, which in turn could adversely
affect Comerica. Further, any decline in these businesses or industries could
cause decreased borrowings, either due to reduced demand or reductions in the
borrowing base available for each customer loan. In particular, oil and gas
prices have fallen sharply since mid-2014. Loans in the Middle Market - Energy
business line were $3.6 billion, or approximately 7 percent of total loans, at
December 31,
2014. If oil and
gas prices remain depressed for a prolonged period of time, Comerica's energy
portfolio could decrease and/or experience increased credit losses, which could
adversely affect Comerica's financial results.
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Operational
difficulties, failure of technology infrastructure or information security
incidents could adversely affect Comerica's business and
operations. |
Comerica is exposed to many types
of operational risk, including legal risk, the risk of fraud or theft by
employees or outsiders, failure of Comerica's controls and procedures and
unauthorized transactions by employees or operational errors, including clerical
or recordkeeping errors or those resulting from computer or telecommunications
systems malfunctions. Given the high volume of transactions at Comerica, certain
errors may be repeated or compounded before they are identified and resolved.
The occurrence of such operational risks can lead to other types of risks
including reputational and compliance risks that may amplify the adverse impact
to Comerica.
In particular, Comerica's
operations rely on the secure processing, storage and transmission of
confidential and other information on its technology systems and networks. Any
failure, interruption or breach in security of these systems could result in
failures or disruptions in Comerica's customer relationship management, general
ledger, deposit, loan and other systems.
Comerica may also be subject to
disruptions of its operating systems arising from events that are wholly or
partially beyond its control, which may include, for example, computer viruses,
cyber attacks (including cyber attacks resulting in the destruction or
exfiltration of data and systems), spikes in transaction volume and/or customer
activity, electrical or telecommunications outages, or natural disasters.
Although Comerica has programs in place related to business continuity, disaster
recovery and information security to maintain the confidentiality, integrity,
and availability of its systems, business applications and customer information,
such disruptions may give rise to interruptions in service to customers and loss
or liability to Comerica. For example, along with a number of other large
financial institutions' websites, Comerica’s website, www.comerica.com, was subject to denial of
service attacks in 2013. These events did not result in a breach of Comerica’s
client data, and account information remained secure; however, during one
attack, some customers may have been prevented from accessing Comerica Bank’s
secure websites through www.comerica.com. In all cases, the attacks
primarily resulted in inconvenience; however, future cyber attacks could be more
disruptive and damaging, and Comerica may not be able to anticipate or prevent
all such attacks.
The occurrence of any failure or
interruption in Comerica's operations or information systems, or any security
breach, could cause reputational damage, jeopardize the confidentiality of
customer information, result in a loss of customer business, subject Comerica to
regulatory intervention or expose it to civil litigation and financial loss or
liability, any of which could have a material adverse effect on
Comerica.
Further, Comerica may be impacted
by data breaches at retailers and other third parties who participate in data
interchanges with Comerica customers that involve the theft of customer data,
which may include the theft of Comerica debit card PIN numbers and commercial
cards used to make purchases at such retailers and other third parties. Such
data breaches could result in Comerica incurring significant expenses to reissue
debit cards and cover losses, which could result in a material adverse effect on
its results of operations.
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Comerica
relies on other companies to provide certain key components of its
business infrastructure, and certain failures could materially adversely
affect operations. |
Comerica faces the risk of
operational disruption, failure or capacity constraints due to its dependency on
third party vendors for components of its business infrastructure. Third party
vendors provide certain key components of Comerica's business infrastructure,
such as data processing and storage, payment processing services, recording and
monitoring transactions, internet connections and network access, clearing
agency and card processing services. While Comerica conducts due diligence prior
to selecting these third party vendors, it does not control their operations. As
such, any failure on the part of these business partners to perform their
various responsibilities could also expose financial institutions to risks that
can result in reputational problems, financial loss or regulatory actions, and
otherwise adversely affect Comerica's business and operations. Additionally,
federal banking regulators recently issued regulatory guidance on how banks
select, engage and manage their outside vendors. These regulations may affect
the circumstances and conditions under which we work with third parties and the
cost of managing such relationships.
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Noninterest
expenses are important to our profitability, but are subject to a number
of factors, some of which are not in our
control. |
Many factors can influence the
amount of noninterest expenses, including changing regulations, rising pension
and health care costs, technology and cybersecurity investments and litigation.
The importance of managing expenses has been amplified in the current slow
growth, low net interest margin business environment. Comerica's noninterest
expenses may increase more than anticipated, which could result in an adverse
impact on net income.
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Changes
in the financial markets, including fluctuations in interest rates and
their impact on deposit pricing, could adversely affect Comerica's net
interest income and balance sheet. |
The operations of financial
institutions such as Comerica are dependent to a large degree on net interest
income, which is the difference between interest income from loans and
investments and interest expense on deposits and borrowings. Prevailing economic
conditions, the trade, fiscal and monetary policies of the federal government
and the policies of various regulatory agencies all affect market rates of
interest and the availability and cost of credit, which in turn significantly
affect financial institutions' net interest income. Interest rates over the past
several years have remained at low levels. A continued low interest rate
environment could adversely affect the interest income Comerica earns on loans
and investments. For a discussion of Comerica's interest rate sensitivity,
please see, “Market and Liquidity Risk” beginning on page F-29 of the
Financial Section of this report.
Volatility in interest rates can
also result in disintermediation, which is the flow of funds away from financial
institutions into direct investments, such as federal government and corporate
securities and other investment vehicles, which, because of the absence of
federal insurance premiums and reserve requirements, generally pay higher rates
of return than financial institutions. Comerica's financial results could be
materially adversely impacted by changes in financial market
conditions.
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Any
reduction in our credit rating could adversely affect Comerica and/or the
holders of its securities. |
Rating agencies regularly
evaluate Comerica, and their ratings are based on a number of factors, including
Comerica's financial strength as well as factors not entirely within its
control, including conditions affecting the financial services industry
generally. There can be no assurance that Comerica will maintain its current
ratings. In March 2012, Moody's Investors Service downgraded Comerica's
long-term and short-term senior credit ratings one notch to A3 and P-2,
respectively. From July 2012 through October 2013, Fitch Ratings had Comerica's
outlook as “Negative”; in October 2013, Fitch Ratings affirmed Comerica's rating
while revising the outlook to “Stable.” In January 2015, Standard & Poor's
revised its outlook on Comerica to "Negative" from "Stable." While recent credit
rating actions have had little to no detrimental impact on Comerica's
profitability, borrowing costs, or ability to access the capital markets, future
downgrades to Comerica's or its subsidiaries' credit ratings could adversely
affect Comerica's profitability, borrowing costs, or ability to access the
capital markets or otherwise have a negative effect on Comerica's results of
operations or financial condition. If such a reduction placed Comerica's or its
subsidiaries' credit ratings below investment grade, it could also create
obligations or liabilities under the terms of existing arrangements that could
increase Comerica's costs under such arrangements. Additionally, a downgrade of
the credit rating of any particular security issued by Comerica or its
subsidiaries could negatively affect the ability of the holders of that security
to sell the securities and the prices at which any such securities may be
sold.
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Unfavorable
developments concerning credit quality could adversely affect Comerica's
financial results. |
Although Comerica regularly
reviews credit exposure related to its customers and various industry sectors in
which it has business relationships, default risk may arise from events or
circumstances that are difficult to detect or foresee. Under such circumstances,
Comerica could experience an increase in the level of provision for credit
losses, nonperforming assets, net charge-offs and reserve for credit losses,
which could adversely affect Comerica's financial results.
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The
soundness of other financial institutions could adversely affect
Comerica. |
Comerica's ability to engage in
routine funding transactions could be adversely affected by the actions and
commercial soundness of other financial institutions. Financial services
institutions are interrelated as a result of trading, clearing, counterparty or
other relationships. Comerica has exposure to many different industries and
counterparties, and it routinely executes transactions with counterparties in
the financial industry, including brokers and dealers, commercial banks,
investment banks, mutual and hedge funds, and other institutional clients. As a
result, defaults by, or even rumors or questions about, one or more financial
services institutions, or the financial services industry generally, have led,
and may further lead, to market-wide liquidity problems and could lead to losses
or defaults by us or by other institutions. Many of these transactions could
expose Comerica to credit risk in the event of default of its counterparty or
client. In addition, Comerica's credit risk may be impacted when the collateral
held by it cannot be realized upon or is liquidated at prices not sufficient to
recover the full amount of the financial instrument exposure due to Comerica.
There is no assurance that any such losses would not adversely affect, possible
materially in nature, Comerica.
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The
introduction, implementation, withdrawal, success and timing of business
initiatives and strategies may be less successful or may be different than
anticipated, which could adversely affect Comerica's
business. |
Comerica makes certain
projections and develops plans and strategies for its banking and financial
products. If Comerica does not accurately determine demand for its banking and
financial product needs, it could result in Comerica incurring significant
expenses without the anticipated increases in revenue, which could result in a
material adverse effect on its business.
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Comerica
may not be able to utilize technology to efficiently and effectively
develop, market, and deliver new products and services to its customers.
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The financial services industry
experiences rapid technological change with regular introductions of new
technology-driven products and services. The efficient and effective utilization
of technology enables financial institutions to better serve customers and to
reduce costs. Comerica's future success depends, in part, upon its ability to
address the needs of its customers by using technology to market and deliver
products and services that will satisfy customer demands, meet regulatory
requirements, and create additional efficiencies in Comerica's operations.
Comerica may not be able to effectively develop new technology-driven products
and services or be successful in marketing or supporting these products and
services to its customers, which could have a material adverse impact on
Comerica's financial condition and results of operations.
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Competitive
product and pricing pressures among financial institutions within
Comerica's markets may change. |
Comerica operates in a very
competitive environment, which is characterized by competition from a number of
other financial institutions in each market in which it operates. Comerica
competes in terms of products and pricing with large national and regional
financial institutions and with smaller financial institutions. Some of
Comerica's larger competitors, including certain nationwide banks that have a
significant presence in Comerica's market area, may make available to their
customers a broader array of product, pricing and structure alternatives and,
due to their asset size, may more easily absorb loans in a larger overall
portfolio. Some of Comerica's smaller competitors may have more liberal lending
policies and processes.
Additionally, the financial
services industry has recently been subject to increasing regulation. For more
information, see the “Supervision and Regulation” section of this report. Such
regulations may require significant additional investments in technology,
personnel or other resources or place limitations on the ability of financial
institutions, including Comerica, to engage in certain activities. Comerica's
competitors may be subject to a significantly different or reduced degree of
regulation due to their asset size or types of products offered. They may also
have the ability to more efficiently utilize resources to comply with
regulations or may be able to more effectively absorb the costs of regulations
into their existing cost structure.
If Comerica is unable to compete
effectively in products and pricing in its markets, business could decline,
which could have a material adverse effect on Comerica's business, financial
condition or results of operations.
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Changes
in customer behavior may adversely impact Comerica's business, financial
condition and results of operations. |
Comerica uses a variety of
financial tools, models and other methods to anticipate customer behavior as a
part of its strategic planning and to meet certain regulatory requirements.
Individual, economic, political, industry-specific conditions and other factors
outside of Comerica's control, such as fuel prices, energy costs, real estate
values or other factors that affect customer income levels, could alter
predicted customer borrowing, repayment, investment and deposit practices. Such
a change in these practices could materially adversely affect Comerica's ability
to anticipate business needs and meet regulatory requirements.
Further, difficult economic
conditions may negatively affect consumer confidence levels. A decrease in
consumer confidence levels would likely aggravate the adverse effects of these
difficult market conditions on Comerica, Comerica's customers and others in the
financial institutions industry.
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Any
future strategic acquisitions or divestitures may present certain risks to
Comerica's business and operations. |
Difficulties in capitalizing on
the opportunities presented by a future acquisition may prevent Comerica from
fully achieving the expected benefits from the acquisition, or may cause the
achievement of such expectations to take longer to realize than expected.
Further, the assimilation of the
acquired entity's customers and markets could result in higher than expected
deposit attrition, loss of key employees, disruption of Comerica's businesses or
the businesses of the acquired entity or otherwise adversely affect Comerica's
ability to maintain relationships with customers and employees or achieve the
anticipated benefits of the acquisition. These matters could have an adverse
effect on Comerica for an undetermined period. Comerica
will be subject to similar risks
and difficulties in connection with any future decisions to downsize, sell or
close units or otherwise change the business mix of Comerica.
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• |
Management's
ability to maintain and expand customer relationships may differ from
expectations. |
The financial services industry
is very competitive. Comerica not only vies for business opportunities with new
customers, but also competes to maintain and expand the relationships it has
with its existing customers. While management believes that it can continue to
grow many of these relationships, Comerica will continue to experience pressures
to maintain these relationships as its competitors attempt to capture its
customers. Failure to create new customer relationships and to maintain and
expand existing customer relationships to the extent anticipated may adversely
impact Comerica's earnings.
|
|
|
• |
Management's
ability to retain key officers and employees may
change. |
Comerica's future operating
results depend substantially upon the continued service of its executive
officers and key personnel. Comerica's future operating results also depend in
significant part upon its ability to attract and retain qualified management,
financial, technical, marketing, sales and support personnel. Competition for
qualified personnel is intense, and Comerica cannot ensure success in attracting
or retaining qualified personnel. There may be only a limited number of persons
with the requisite skills to serve in these positions, and it may be
increasingly difficult for Comerica to hire personnel over time.
Further, Comerica's ability to
retain key officers and employees may be impacted by legislation and regulation
affecting the financial services industry. On April 14, 2011, FRB, OCC and
several other federal financial regulators issued a joint proposed rulemaking to
implement Section 956 of the Dodd-Frank Act. Section 956 requires the
regulators to issue regulations that prohibit incentive-based compensation
arrangements that encourage inappropriate risk taking by covered financial
institutions and are deemed to be excessive, or that may lead to material
losses. Consistent with the Dodd-Frank Act, the proposed rule would not apply to
institutions with total consolidated assets of less than $1 billion, and would
impose heightened standards for institutions with $50 billion or more in total
consolidated assets, which includes Comerica. For these larger institutions, the
proposed rule would require that at least 50 percent of incentive-based payments
be deferred over a minimum period of three years for designated executives.
Moreover, boards of directors of these larger institutions would be required to
identify employees who have the ability to expose the institution to possible
losses that are substantial in relation to the institution's size, capital or
overall risk tolerance, and to determine that the incentive compensation for
these employees appropriately balances risk and rewards according to enumerated
standards. Accordingly, Comerica may be at a disadvantage to offer competitive
compensation compared to other financial institutions (as referenced above) or
companies in other industries, which may not be subject to the same
requirements.
Comerica's business, financial
condition or results of operations could be materially adversely affected by the
loss of any of its key employees, or Comerica's inability to attract and retain
skilled employees.
|
|
|
• |
Legal
and regulatory proceedings and related matters with respect to the
financial services industry, including those directly involving Comerica
and its subsidiaries, could adversely affect Comerica or the financial
services industry in general. |
Comerica has been, and may in the
future be, subject to various legal and regulatory proceedings. It is inherently
difficult to assess the outcome of these matters, and there can be no assurance
that Comerica will prevail in any proceeding or litigation. Any such matter
could result in substantial cost and diversion of Comerica's efforts, which by
itself could have a material adverse effect on Comerica's financial condition
and operating results. Further, adverse determinations in such matters could
result in actions by Comerica's regulators that could materially adversely
affect Comerica's business, financial condition or results of
operations.
Comerica establishes reserves for
legal claims when payments associated with the claims become probable and the
costs can be reasonably estimated. Comerica may still incur legal costs for a
matter even if it has not established a reserve. In addition, due to the
inherent subjectivity of the assessments and unpredictability of the outcome of
legal proceedings, the actual cost of resolving a legal claim may be
substantially higher than any amounts reserved for that matter. The ultimate
resolution of a pending legal proceeding, depending on the remedy sought and
granted, could adversely affect Comerica's results of operations and financial
condition.
|
|
|
• |
Methods
of reducing risk exposures might not be
effective. |
Instruments, systems and
strategies used to hedge or otherwise manage exposure to various types of
credit, market, liquidity, operational, compliance and strategic risks could be
less effective than anticipated. As a result, Comerica may not be able to
effectively mitigate its risk exposures in particular market environments or
against particular types of risk, which could have a material adverse impact on
Comerica's business, financial condition or results of
operations.
|
|
|
• |
Terrorist
activities or other hostilities may adversely affect the general economy,
financial and capital markets, specific industries, and
Comerica. |
Terrorist attacks or other
hostilities may disrupt Comerica's operations or those of its customers. In
addition, these events have had and may continue to have an adverse impact on
the U.S. and world economy in general and consumer confidence and spending in
particular, which could harm Comerica's operations. Any of these events could
increase volatility in the U.S. and world financial markets, which could harm
Comerica's stock price and may limit the capital resources available to Comerica
and its customers. This could have a material adverse impact on Comerica's
operating results, revenues and costs and may result in increased volatility in
the market price of Comerica's common stock.
|
|
|
• |
Catastrophic
events, including, but not limited to, hurricanes, tornadoes, earthquakes,
fires, droughts and floods, may adversely affect the general economy,
financial and capital markets, specific industries, and
Comerica. |
Comerica has significant
operations and a significant customer base in California, Texas, Florida and
other regions where natural and other disasters may occur. These regions are
known for being vulnerable to natural disasters and other risks, such as
tornadoes, hurricanes, earthquakes, fires, droughts and floods. These types of
natural catastrophic events at times have disrupted the local economy,
Comerica's business and customers and have posed physical risks to Comerica's
property. In addition, catastrophic events occurring in other regions of the
world may have an impact on Comerica's customers and in turn, on Comerica. A
significant catastrophic event could materially adversely affect Comerica's
operating results.
|
|
|
• |
Changes
in accounting standards could materially impact Comerica's financial
statements. |
From time to time accounting
standards setters change the financial accounting and reporting standards that
govern the preparation of Comerica's financial statements. These changes can be
difficult to predict and can materially impact how Comerica records and reports
its financial condition and results of operations. In some cases, Comerica could
be required to apply a new or revised standard retroactively, resulting in
changes to previously reported financial results, or a cumulative charge to
retained earnings.
|
|
|
• |
Comerica's
accounting policies and processes are critical to the reporting of
financial condition and results of operations. They require management to
make estimates about matters that are uncertain.
|
Accounting policies and processes
are fundamental to how Comerica records and reports the financial condition and
results of operations. Management must exercise judgment in selecting and
applying many of these accounting policies and processes so they comply with
U.S. GAAP. In some cases, management must select the accounting policy or method
to apply from two or more alternatives, any of which may be reasonable under the
circumstances, yet may result in the Company reporting materially different
results than would have been reported under a different
alternative.
Management has identified certain
accounting policies as being critical because they require management's judgment
to make difficult, subjective or complex judgments about matters that are
uncertain. Materially different amounts could be reported under different
conditions or using different assumptions or estimates. Comerica has established
detailed policies and control procedures that are intended to ensure these
critical accounting estimates and judgments are well controlled and applied
consistently. In addition, the policies and procedures are intended to ensure
that the process for changing methodologies occurs in an appropriate manner.
Because of the uncertainty surrounding management's judgments and the estimates
pertaining to these matters, Comerica cannot guarantee that it will not be
required to adjust accounting policies or restate prior period financial
statements. See “Critical Accounting Policies” on pages F-37 through F-40
of the Financial Section of this report and Note 1 of the Notes to
Consolidated Financial Statements located on pages F-48 through F-61 of the
Financial Section of this report.
Item 1B. Unresolved
Staff Comments.
None.
Item 2. Properties.
The executive offices of Comerica
are located in the Comerica Bank Tower, 1717 Main Street, Dallas, Texas 75201.
Comerica Bank occupies five floors of the building, plus additional space on the
building's lower level. Comerica leased an additional floor of the building,
totaling 25,135 sq. feet, in December 2014, which is anticipated to be occupied
starting in April 2015. Comerica does not own the Comerica Bank Tower space, but
has naming rights to the building and leases the space from an unaffiliated
third party. The lease for such space used by Comerica and its subsidiaries
extends through September 2023. Comerica's Michigan headquarters are located in
a 10-story building in the central business district of Detroit, Michigan at 411
W. Lafayette, Detroit, Michigan 48226. Such building is owned by Comerica Bank.
As of December 31,
2014, Comerica,
through its banking affiliates, operated a total of 548 banking centers, trust
services locations, and loan production or other financial services offices,
primarily in the States of Texas, Michigan, California, Florida and Arizona. Of
these offices, 235 were owned and 313 were leased. As of December 31,
2014, affiliates
also operated from leased spaces in Denver, Colorado; Wilmington, Delaware;
Oakbrook Terrace, Illinois; Boston and Waltham, Massachusetts; Minneapolis,
Minnesota; Morristown, New Jersey; New York, New York; Rocky Mount and Cary,
North Carolina; Granville, Ohio; Memphis, Tennessee; Reston, Virginia; Bellevue
and Seattle, Washington; Monterrey, Mexico; Toronto, Ontario, Canada and
Windsor, Ontario, Canada. Comerica and its subsidiaries own, among other
properties, a check processing center in Livonia, Michigan, and three buildings
in Auburn Hills, Michigan, used mainly for lending functions and
operations.
Item 3. Legal
Proceedings.
Please see Note 21
of the Notes to Consolidated Financial Statements located on pages F-100
through F-101 of the Financial Section of this report.
Item 4.
Mine Safety Disclosures.
Not applicable.
PART
II
Item 5. Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities.
Market
Information and Holders of Common Stock
The common stock of Comerica
Incorporated is traded on the New York Stock Exchange (NYSE Trading Symbol:
CMA). At February 11, 2015, there were approximately 10,695 record holders
of Comerica's common stock.
Sales Prices
and Dividends
Quarterly cash dividends were
declared during 2014
and 2013 totaling $0.79 and $0.68 per common share per year,
respectively. The following table sets forth, for the periods indicated, the
high and low sale prices per share of Comerica's common stock as reported on the
NYSE Composite Transactions Tape for all quarters of 2014 and 2013, as well as dividend
information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter |
|
High |
|
Low |
|
Dividends Per
Share |
|
Dividend Yield* |
|
2014 |
|
|
|
|
|
|
|
|
|
Fourth |
|
$ |
50.14 |
|
|
$ |
42.73 |
|
|
$ |
0.20 |
|
|
1.7 |
% |
|
Third |
|
52.72 |
|
|
48.33 |
|
|
0.20 |
|
|
1.6 |
|
|
Second |
|
52.60 |
|
|
45.34 |
|
|
0.20 |
|
|
1.6 |
|
|
First |
|
53.50 |
|
|
43.96 |
|
|
0.19 |
|
|
1.6 |
|
|
2013 |
|
|
|
|
|
|
|
|
|
Fourth |
|
$ |
48.69 |
|
|
$ |
38.64 |
|
|
$ |
0.17 |
|
|
1.6 |
% |
|
Third |
|
43.49 |
|
|
38.56 |
|
|
0.17 |
|
|
1.7 |
|
|
Second |
|
40.44 |
|
|
33.55 |
|
|
0.17 |
|
|
1.8 |
|
|
First |
|
36.99 |
|
|
30.73 |
|
|
0.17 |
|
|
2.0 |
|
|
*
Dividend yield is calculated by annualizing the quarterly dividend per
share and dividing by an average of the high and low price in the
quarter. |
A discussion of dividend
restrictions is set forth in Note 20 of the Notes to Consolidated
Financial Statements located on pages F-99 through F-100 of the Financial
Section of this report and in the “Supervision and Regulation” section of this
report.
Performance
Graph
Our performance graph is
available under the caption "Performance Graph" on page F-2 of the Financial
Section of this report.
Purchases of
Equity Securities by the Issuer and Affiliated Purchasers
On April 22, 2014, the Board of
Directors of Comerica authorized the repurchase of up to an additional 2.0
million shares of Comerica Incorporated outstanding common stock, in addition to
the 5.1 million shares remaining at March 31, 2014 under the Board's prior
authorizations for the share repurchase program initially approved in November
2010. Including the April 22, 2014 authorization, a total of 30.3 million shares
has been authorized for repurchase under the share repurchase program since its
inception in 2010. In November 2010, the Board authorized the purchase of up to
all 11.5 million of Comerica's original outstanding warrants. There is no
expiration date for Comerica's share repurchase program.
The following table summarizes
Comerica's share repurchase activity for the year ended December 31,
2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(shares
in thousands) |
Total Number of Shares
and
Warrants Purchased
as Part
of Publicly
Announced
Repurchase
Plans
or Programs |
|
Remaining
Repurchase
Authorization
(a) |
|
Total Number
of
Shares
Purchased
(b) |
|
Average
Price
Paid Per
Share |
|
Average
Price
Paid Per
Warrant
(c) |
|
Total
first quarter 2014 |
1,523 |
|
|
16,591 |
|
|
1,703 |
|
|
$ |
47.21 |
|
|
$ |
— |
|
|
Total
second quarter 2014 |
1,236 |
|
|
16,697 |
|
(d) |
1,273 |
|
|
47.73 |
|
|
— |
|
|
Total
third quarter 2014 |
1,183 |
|
|
15,334 |
|
|
1,186 |
|
|
49.83 |
|
|
— |
|
|
October
2014 |
693 |
|
|
14,640 |
|
|
702 |
|
|
46.55 |
|
|
— |
|
|
November
2014 |
430 |
|
|
14,210 |
|
|
439 |
|
|
48.29 |
|
|
— |
|
|
December
2014 |
128 |
|
|
14,082 |
|
|
129 |
|
|
46.10 |
|
|
— |
|
|
Total
fourth quarter 2014 |
1,251 |
|
|
14,082 |
|
|
1,270 |
|
|
47.11 |
|
|
— |
|
|
Total
2014 |
5,193 |
|
|
14,082 |
|
|
5,432 |
|
|
47.88 |
|
|
— |
|
|
|
|
(a) |
Maximum
number of shares and warrants that may yet be purchased under the publicly
announced plans or programs. |
|
|
|
(b) |
Includes
approximately 239,000
shares
(including 19,000
shares
in the quarter ended December 31,
2014)
purchased pursuant to deferred compensation plans and shares purchased
from employees to pay for required minimum tax withholding related to
restricted stock vesting under the terms of an employee share-based
compensation plan during the year ended December 31,
2014.
These transactions are not considered part of Comerica's repurchase
program. |
|
|
|
(c) |
Comerica
made no repurchases of warrants under the repurchase program during the
year ended December 31,
2014.
Upon exercise of a warrant, the number of shares with a value equal to the
aggregate exercise price is withheld from an exercising warrant holder as
payment (known as a "net exercise provision"). During the year ended
December 31,
2014,
Comerica withheld the equivalent of approximately 491,000 shares
to cover an aggregate of $25.1
million
in exercise price and issued approximately 361,000 shares
to the exercising warrant holders. Shares withheld in connection with the
net exercise provision are not included in the total number of shares or
warrants purchased in the above table. |
|
|
|
(d) |
Includes
April 22, 2014 share repurchase authorization for up to an additional 2.0
million shares. |
Item 6. Selected
Financial Data.
Reference is made to the caption
“Selected Financial Data” on page F-3 of the Financial Section of this report.
Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
Reference is made to the sections
entitled “2014 Overview and 2015 Outlook,” “Results of Operations," "Strategic
Lines of Business," "Balance Sheet and Capital Funds Analysis," "Risk
Management," "Critical Accounting Policies," "Supplemental Financial Data" and
"Forward-Looking Statements" on pages F-4 through F-42 of the Financial Section
of this report.
Item 7A. Quantitative
and Qualitative Disclosures About Market Risk.
Reference is made to the
subheadings entitled “Market and Liquidity Risk,” “Operational Risk,”
“Compliance Risk” and “Strategic Risk” on pages F-29 through F-36 of the
Financial Section of this report.
Item 8. Financial
Statements and Supplementary Data.
Reference is made to the sections
entitled “Consolidated Balance Sheets,” “Consolidated Statements of Income,”
“Consolidated Statements of Comprehensive Income,” “Consolidated Statements of
Changes in Shareholders' Equity,” “Consolidated Statements of Cash Flows,”
“Notes to Consolidated Financial Statements,” “Report of Management,” “Reports
of Independent Registered Public Accounting Firm,” and “Historical Review” on
pages F-43 through F-114 of the Financial Section of this report.
Item 9. Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure.
None.
Item 9A. Controls
and Procedures.
Disclosure
Controls and Procedures
As required by
Rule 13a-15(b) of the Exchange Act, management, including the Chief
Executive Officer and Chief Financial Officer, conducted an evaluation as of the
end of the period covered by this Annual Report on Form 10-K, of the
effectiveness of our disclosure controls and procedures as defined in Exchange
Act Rule 13a-15(e). Based on that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that Comerica's disclosure controls and
procedures were effective as of the end of the period covered by this Annual
Report on Form 10-K.
Internal
Control over Financial Reporting
Management's annual report on
internal control over financial reporting and the related attestation report of
Comerica's registered public accounting firm are included on pages F-109
and F-110 in the Financial Section of this report.
As required by
Rule 13a-15(d) of the Exchange Act, management, including the Chief
Executive Officer and Chief Financial Officer, conducted an evaluation of our
internal control over financial reporting to determine whether any changes
occurred during the period covered by this Annual Report on Form 10-K that
have materially affected, or are reasonably likely to materially affect,
Comerica's internal control over financial reporting. Based on that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that there has
been no such change during the last quarter of the fiscal year covered by this
Annual Report on Form 10-K that has materially affected, or is reasonably
likely to materially affect, Comerica's internal control over financial
reporting.
Item 9B. Other
Information.
None.
PART
III
Item 10. Directors,
Executive Officers and Corporate Governance.
Comerica has a Senior Financial
Officer Code of Ethics that applies to the Chief Executive Officer, the Chief
Financial Officer, the Chief Accounting Officer and the Treasurer. The Senior
Financial Officer Code of Ethics is available on Comerica's website at
www.comerica.com. If any substantive amendments
are made to the Senior Financial Officer Code of Ethics or if Comerica grants
any waiver, including any implicit waiver, from a provision of the Senior
Financial Officer Code of Ethics to the Chief Executive Officer, the Chief
Financial Officer, the Chief Accounting Officer or the Treasurer, we will
disclose the nature of such amendment or waiver on our website.
The remainder of the response to
this item will be included under the sections captioned “Information About
Nominees,” “Committees and Meetings of Directors,” “Committee Assignments,”
“Executive Officers” and “Section 16(a) Beneficial Ownership Reporting
Compliance” of Comerica's definitive Proxy Statement relating to the Annual
Meeting of Shareholders to be held on April 28, 2015, which sections are hereby
incorporated by reference.
Item 11. Executive
Compensation.
The response to this item will be
included under the sections captioned “Compensation Committee Interlocks and
Insider Participation,” “Compensation Discussion and Analysis,” “Compensation of
Directors,” “Governance, Compensation and Nominating Committee Report,”
“2014 Summary Compensation Table,” “2014 Grants of Plan-Based Awards,”
“Outstanding Equity Awards at Fiscal Year-End 2014,” “2014 Option
Exercises and Stock Vested,” “Pension Benefits at Fiscal
Year-End 2014,” “2014 Nonqualified Deferred Compensation,” and
“Potential Payments upon Termination or Change of Control at Fiscal
Year-End 2014” of Comerica's definitive Proxy Statement relating to the
Annual Meeting of Shareholders to be held on April 28, 2015, which sections are
hereby incorporated by reference.
Item 12. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
The response to this item will be
included under the sections captioned “Security Ownership of Certain Beneficial
Owners,” “Security Ownership of Management” and "Securities Authorized for
Issuance Under Equity Compensation Plans" of Comerica's definitive Proxy
Statement relating to the Annual Meeting of Shareholders to be held on April 28,
2015, which sections are hereby incorporated by reference.
Item 13. Certain
Relationships and Related Transactions, and Director Independence.
The response to this item will be
included under the sections captioned “Director Independence and Transactions of
Directors with Comerica,” “Transactions of Related Parties with Comerica,” and
“Information about Nominees” of Comerica's definitive Proxy Statement relating
to the Annual Meeting of Shareholders to be held on April 28, 2015, which
sections are hereby incorporated by reference.
Item 14. Principal
Accountant Fees and Services.
The response to this item will be
included under the section captioned “Independent Auditors” of Comerica's
definitive Proxy Statement relating to the Annual Meeting of Shareholders to be
held on April 28, 2015, which section is hereby incorporated by
reference.
PART
IV
Item 15. Exhibits
and Financial Statement Schedules
The following documents are filed
as a part of this report:
|
|
|
|
|
1. |
|
Financial
Statements: The financial statements that are filed as part of this report
are included in the Financial Section on pages F-43 through F-111. |
|
|
|
|
|
2. |
|
All
of the schedules for which provision is made in the applicable accounting
regulations of the SEC are either not required under the related
instruction, the required information is contained elsewhere in the
Form 10-K, or the schedules are inapplicable and therefore have been
omitted. |
|
|
|
|
|
3. |
|
Exhibits:
The exhibits listed on the Exhibit Index on pages E-1 through E-5 of this
Form 10-K are filed with this report or are incorporated herein by
reference. |
FINANCIAL
REVIEW AND REPORTS
Comerica
Incorporated and Subsidiaries
PERFORMANCE
GRAPH
The graph shown below compares
the total returns (assuming reinvestment of dividends) of Comerica Incorporated
common stock, the S&P 500 Index, and the Keefe Bank Index. The graph
assumes $100 invested in Comerica Incorporated common stock (returns based on
stock prices per the NYSE) and each of the indices on December 31, 2009 and the
reinvestment of all dividends during the periods presented.
The
performance shown on the graph is not necessarily indicative of future
performance.
SELECTED
FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollar
amounts in millions, except per share data) |
|
|
|
|
|
|
|
|
|
|
Years
Ended December 31 |
2014 |
|
2013 |
|
2012 |
|
2011 |
|
2010 |
|
EARNINGS
SUMMARY |
|
|
|
|
|
|
|
|
|
|
Net
interest income |
$ |
1,655 |
|
|
$ |
1,672 |
|
|
$ |
1,728 |
|
|
$ |
1,653 |
|
|
$ |
1,646 |
|
|
Provision
for credit losses |
27 |
|
|
46 |
|
|
79 |
|
|
144 |
|
|
478 |
|
|
Noninterest
income |
868 |
|
|
882 |
|
|
870 |
|
|
843 |
|
|
839 |
|
|
Noninterest
expenses |
1,626 |
|
|
1,722 |
|
|
1,757 |
|
|
1,771 |
|
|
1,642 |
|
|
Provision
for income taxes |
277 |
|
|
245 |
|
|
241 |
|
|
188 |
|
|
105 |
|
|
Income
from continuing operations |
593 |
|
|
541 |
|
|
521 |
|
|
393 |
|
|
260 |
|
|
Net
income |
593 |
|
|
541 |
|
|
521 |
|
|
393 |
|
|
277 |
|
|
Preferred
stock dividends |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
123 |
|
|
Net
income attributable to common shares |
586 |
|
|
533 |
|
|
515 |
|
|
389 |
|
|
153 |
|
|
PER
SHARE OF COMMON STOCK |
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share: |
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations |
$ |
3.16 |
|
|
$ |
2.85 |
|
|
$ |
2.67 |
|
|
$ |
2.09 |
|
|
$ |
0.78 |
|
|
Net
income |
3.16 |
|
|
2.85 |
|
|
2.67 |
|
|
2.09 |
|
|
0.88 |
|
|
Cash
dividends declared |
0.79 |
|
|
0.68 |
|
|
0.55 |
|
|
0.40 |
|
|
0.25 |
|
|
Common
shareholders’ equity |
41.35 |
|
|
39.22 |
|
|
36.86 |
|
|
34.79 |
|
|
32.80 |
|
|
Tangible
common equity (a) |
37.72 |
|
|
35.64 |
|
|
33.36 |
|
|
31.40 |
|
|
31.92 |
|
|
Market
value |
46.84 |
|
|
47.54 |
|
|
30.34 |
|
|
25.80 |
|
|
42.24 |
|
|
Average
diluted shares (in millions) |
185 |
|
|
187 |
|
|
192 |
|
|
186 |
|
|
173 |
|
|
YEAR-END
BALANCES |
|
|
|
|
|
|
|
|
|
|
Total
assets |
$ |
69,190 |
|
|
$ |
65,224 |
|
|
$ |
65,066 |
|
|
$ |
61,005 |
|
|
$ |
53,664 |
|
|
Total
earning assets |
63,788 |
|
|
60,200 |
|
|
59,618 |
|
|
55,506 |
|
|
49,352 |
|
|
Total
loans |
48,593 |
|
|
45,470 |
|
|
46,057 |
|
|
42,679 |
|
|
40,236 |
|
|
Total
deposits |
57,486 |
|
|
53,292 |
|
|
52,191 |
|
|
47,755 |
|
|
40,471 |
|
|
Total
medium- and long-term debt |
2,679 |
|
|
3,543 |
|
|
4,720 |
|
|
4,944 |
|
|
6,138 |
|
|
Total
common shareholders’ equity |
7,402 |
|
|
7,150 |
|
|
6,939 |
|
|
6,865 |
|
|
5,790 |
|
|
AVERAGE
BALANCES |
|
|
|
|
|
|
|
|
|
|
Total
assets |
$ |
66,338 |
|
|
$ |
63,933 |
|
|
$ |
62,569 |
|
|
$ |
56,914 |
|
|
$ |
55,550 |
|
|
Total
earning assets |
61,560 |
|
|
59,091 |
|
|
57,483 |
|
|
52,121 |
|
|
51,004 |
|
|
Total
loans |
46,588 |
|
|
44,412 |
|
|
43,306 |
|
|
40,075 |
|
|
40,517 |
|
|
Total
deposits |
54,784 |
|
|
51,711 |
|
|
49,533 |
|
|
43,762 |
|
|
39,486 |
|
|
Total
medium- and long-term debt |
2,965 |
|
|
3,972 |
|
|
4,818 |
|
|
5,519 |
|
|
8,684 |
|
|
Total
common shareholders’ equity |
7,373 |
|
|
6,965 |
|
|
7,009 |
|
|
6,348 |
|
|
5,622 |
|
|
Total
shareholders’ equity |
7,373 |
|
|
6,965 |
|
|
7,009 |
|
|
6,348 |
|
|
6,065 |
|
|
CREDIT
QUALITY |
|
|
|
|
|
|
|
|
|
|
Total
allowance for credit losses |
$ |
635 |
|
|
$ |
634 |
|
|
$ |
661 |
|
|
$ |
752 |
|
|
$ |
936 |
|
|
Total
nonperforming loans |
290 |
|
|
374 |
|
|
541 |
|
|
887 |
|
|
1,123 |
|
|
Foreclosed
property |
10 |
|
|
9 |
|
|
54 |
|
|
94 |
|
|
112 |
|
|
Total
nonperforming assets |
300 |
|
|
383 |
|
|
595 |
|
|
981 |
|
|
1,235 |
|
|
Net
credit-related charge-offs |
25 |
|
|
73 |
|
|
170 |
|
|
328 |
|
|
564 |
|
|
Net
credit-related charge-offs as a percentage of average total
loans |
0.05 |
% |
|
0.16 |
% |
|
0.39 |
% |
|
0.82 |
% |
|
1.39 |
% |
|
Allowance for loan losses as
a percentage of total period-end loans |
1.22 |
|
|
1.32 |
|
|
1.37 |
|
|
1.70 |
|
|
2.24 |
|
|
Allowance for loan losses as
a percentage of total nonperforming loans |
205 |
|
|
160 |
|
|
116 |
|
|
82 |
|
|
80 |
|
|
RATIOS |
|
|
|
|
|
|
|
|
|
|
Net
interest margin (fully taxable equivalent) |
2.70 |
% |
|
2.84 |
% |
|
3.03 |
% |
|
3.19 |
% |
|
3.24 |
% |
|
Return
on average assets |
0.89 |
|
|
0.85 |
|
|
0.83 |
|
|
0.69 |
|
|
0.50 |
|
|
Return
on average common shareholders’ equity |
8.05 |
|
|
7.76 |
|
|
7.43 |
|
|
6.18 |
|
|
2.74 |
|
|
Dividend
payout ratio |
24.09 |
|
|
23.29 |
|
|
20.52 |
|
|
18.96 |
|
|
27.78 |
|
|
Average common shareholders’
equity as a percentage of average assets |
11.11 |
|
|
10.90 |
|
|
11.21 |
|
|
11.16 |
|
|
10.13 |
|
|
Tier
1 common capital as a percentage of risk-weighted assets
(a) |
10.50 |
|
|
10.64 |
|
|
10.14 |
|
|
10.37 |
|
|
10.13 |
|
|
Tier
1 capital as a percentage of risk-weighted assets |
10.50 |
|
|
10.64 |
|
|
10.14 |
|
|
10.41 |
|
|
10.13 |
|
|
Tangible
common equity as a percentage of tangible assets (a) |
9.85 |
|
|
10.07 |
|
|
9.76 |
|
|
10.27 |
|
|
10.54 |
|
|
|
|
(a)
|
See
Supplemental Financial Data section for reconcilements of non-GAAP
financial measures. |
n/m - not
meaningful.
2014 OVERVIEW AND
2015
OUTLOOK
Comerica Incorporated (the
Corporation) is a financial holding company headquartered in Dallas, Texas. The
Corporation's major business segments are the Business Bank, the Retail Bank and
Wealth Management. The core businesses are tailored to each of the Corporation's
three primary geographic markets: Michigan, California and Texas. Information
about the activities of the Corporation's business segments is provided in Note
22 to the consolidated financial
statements.
As a financial institution, the
Corporation's principal activity is lending to and accepting deposits from
businesses and individuals. The primary source of revenue is net interest
income, which is principally derived from the difference between interest earned
on loans and investment securities and interest paid on deposits and other
funding sources. The Corporation also provides other products and services that
meet the financial needs of customers which generate noninterest income, the
Corporation's secondary source of revenue. Growth in loans, deposits and
noninterest income is affected by many factors, including economic conditions in
the markets the Corporation serves, the financial requirements and economic
health of customers, and the ability to add new customers and/or increase the
number of products used by current customers. Success in providing products and
services depends on the financial needs of customers and the types of products
desired.
The accounting and reporting
policies of the Corporation and its subsidiaries conform to generally accepted
accounting principles (GAAP) in the United States (U.S.). The Corporation's
consolidated financial statements are prepared based on the application of
accounting policies, the most significant of which are described in Note
1
to the consolidated financial statements. The most critical of these
significant accounting policies are discussed in the “Critical Accounting
Policies” section of this financial review.
OVERVIEW
|
|
|
• |
Net income was $593
million in
2014,
an increase of $52
million, or
10
percent,
compared to $541
million in
2013.
Net income per diluted common share was $3.16 in 2014, compared to $2.85
in 2013.
Excluding the impact to 2013 results of an unfavorable jury verdict in a
lender liability case, which decreased 2013 net income by $28 million, or
15 cents per share, 2014 net income increased $24 million, or 4 percent,
and earnings per diluted share increased 16 cents, or 5 percent.
|
|
|
|
• |
Average loans were
$46.6
billion in
2014,
an increase of $2.2
billion, or
5
percent,
compared to 2013.
The increase in average loans primarily reflected an increase of
$1.7
billion, or
6
percent, in
commercial loans, $158
million, or 10
percent, in residential mortgage loans and $117
million, or 5
percent, in consumer loans. The increase in commercial loans primarily
reflected increases in Technology and Life Sciences, National Dealer
Services, Energy and general Middle Market, partially offset by a
decrease in Mortgage Banker Finance. |
|
|
|
• |
Average deposits increased
$3.1
billion, or
6
percent, to
$54.8
billion in
2014,
compared to 2013.
The increase in average deposits reflected increases of $2.6
billion, or
12
percent, in
average noninterest-bearing deposits and $1.2
billion, or
5
percent, in
money market and interest-bearing checking deposits, partially offset by a
decrease of $602 million, or 11
percent, in
customer certificates of deposit. The increase in average deposits
reflected increases in almost all lines of business and in all geographic
markets. |
|
|
|
• |
Net interest income was
$1.7
billion in
2014,
a decrease of $17
million, or
1
percent,
compared to 2013.
The decrease in net interest income resulted primarily from a
$15
million
decrease in the accretion of the purchase discount on the acquired loan
portfolio. The benefit from an increase in average earning assets of
$2.5
billion and
lower funding costs was offset by continued pressure on yields from the
low-rate environment and loan portfolio
dynamics. |
|
|
|
• |
The provision for credit
losses decreased $19
million in
2014,
compared to 2013,
primarily due to continued improvements in credit quality. Improvements
in credit quality included a decline of $367
million in the
Corporation's criticized loan list from December 31,
2013 to
December 31,
2014. The
Corporation's criticized loan list is consistent with loans in the Special
Mention, Substandard and Doubtful categories defined by regulatory
authorities. Additional indicators of improved credit quality included a
$48
million
decrease in net credit-related charge-offs in 2014, compared to 2013.
|
|
|
|
• |
Noninterest income
decreased $14
million or
2
percent, in
2014,
compared to 2013,
primarily the result of a $19
million
decrease in noncustomer-driven income categories, with the largest
decreases in deferred compensation asset returns, securities trading
income and warrant income, partially offset by a $5
million
increase in customer-driven fees, largely driven by increases in fiduciary
income and card fees, partially offset by a decrease in letter of credit
fees. |
|
|
|
• |
Noninterest expenses
decreased $96
million, or
6
percent, in
2014,
compared to 2013,
primarily reflecting decreases of $48
million in
litigation-related expenses and $47
million in
pension expense. |
|
|
|
• |
The quarterly dividend was
increased to 19 cents
per common share in January 2014 and further increased to 20 cents
per share in April 2014, increases of 12 percent and 5 percent,
respectively. |
|
|
|
• |
Shares repurchased under
the share repurchase program totaled 5.2
million shares
in 2014.
Together with dividends of $0.79 per share, $392 million, or 66
percent of
2014
net income, was returned to
shareholders. |
2015
OUTLOOK
Management expectations for
2015, compared to 2014, assuming a continuation of the
current economic and low-rate environment, are as follows:
|
|
|
• |
Average loan growth
consistent with 2014, reflecting typical
seasonality in Mortgage Banker Finance and National Dealer Services
throughout the year and continued focus on pricing and structure
discipline. |
|
|
|
• |
Net interest income
relatively stable, assuming no rise in interest rates, reflecting a
decrease of about $30 million in purchase accounting accretion, to $4
million to $6 million, and the impact of a continuing low rate environment
on asset yields, offset by earning asset
growth. |
|
|
|
• |
Provision for credit losses
higher, consistent with modest net charge-offs and continued loan
growth. |
|
|
|
• |
Noninterest income
relatively stable, reflecting growth in fee income, particularly card fees
and fiduciary income, mostly offset by regulatory impacts on letter of
credit, derivative and warrant income. |
|
|
|
• |
Noninterest expenses
higher, reflecting increases in technology, regulatory and pension
expenses, as well as typical inflationary pressures, with continued focus
on driving efficiencies for the long term. Technology and regulatory
expenses are expected to increase approximately $40 million in total,
compared to 2014. |
|
|
|
• |
Income tax expense to
approximate 33 percent of pretax income. |
RESULTS OF
OPERATIONS
The following provides a
comparative discussion of the Corporation's consolidated results of operations
for 2014 compared to 2013. A comparative discussion of
results for 2013
compared to 2012
is provided at the end of this section. For a discussion of the Critical
Accounting Policies that affect the Consolidated Results of Operations, see the
"Critical Accounting Policies" section of this Financial Review.
ANALYSIS OF
NET INTEREST INCOME - Fully Taxable Equivalent (FTE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollar
amounts in millions) |
|
|
|
|
|
|
|
|
Years
Ended December 31 |
2014 |
|
2013 |
|
2012 |
|
|
Average
Balance |
Interest |
Average
Rate |
|
Average
Balance |
Interest |
Average
Rate |
|
Average
Balance |
Interest |
Average
Rate |
|
Commercial
loans |
$ |
29,715 |
|
$ |
927 |
|
3.12 |
% |
|
$ |
27,971 |
|
$ |
917 |
|
3.28 |
% |
|
$ |
26,224 |
|
$ |
903 |
|
3.44 |
% |
|
Real
estate construction loans |
1,909 |
|
65 |
|
3.41 |
|
|
1,486 |
|
57 |
|
3.85 |
|
|
1,390 |
|
62 |
|
4.44 |
|
|
Commercial
mortgage loans |
8,706 |
|
327 |
|
3.75 |
|
|
9,060 |
|
372 |
|
4.11 |
|
|
9,842 |
|
437 |
|
4.44 |
|
|
Lease
financing |
834 |
|
19 |
|
2.33 |
|
|
847 |
|
27 |
|
3.23 |
|
|
864 |
|
26 |
|
3.01 |
|
|
International
loans |
1,376 |
|
50 |
|
3.65 |
|
|
1,275 |
|
48 |
|
3.74 |
|
|
1,272 |
|
47 |
|
3.73 |
|
|
Residential
mortgage loans |
1,778 |
|
68 |
|
3.82 |
|
|
1,620 |
|
66 |
|
4.09 |
|
|
1,505 |
|
68 |
|
4.55 |
|
|
Consumer
loans |
2,270 |
|
73 |
|
3.20 |
|
|
2,153 |
|
71 |
|
3.30 |
|
|
2,209 |
|
76 |
|
3.42 |
|
|
Total
loans (a) (b) |
46,588 |
|
1,529 |
|
3.28 |
|
|
44,412 |
|
1,558 |
|
3.51 |
|
|
43,306 |
|
1,619 |
|
3.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed
securities |
8,970 |
|
209 |
|
2.33 |
|
|
9,246 |
|
213 |
|
2.33 |
|
|
9,446 |
|
231 |
|
2.52 |
|
|
Other
investment securities |
380 |
|
2 |
|
0.45 |
|
|
391 |
|
2 |
|
0.48 |
|
|
469 |
|
4 |
|
0.77 |
|
|
Total
investment securities (c) |
9,350 |
|
211 |
|
2.26 |
|
|
9,637 |
|
215 |
|
2.25 |
|
|
9,915 |
|
235 |
|
2.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
deposits with banks |
5,513 |
|
14 |
|
0.26 |
|
|
4,930 |
|
13 |
|
0.26 |
|
|
4,128 |
|
10 |
|
0.26 |
|
|
Other
short-term investments |
109 |
|
— |
|
0.57 |
|
|
112 |
|
1 |
|
1.22 |
|
|
134 |
|
2 |
|
1.65 |
|
|
Total
earning assets |
61,560 |
|
1,754 |
|
2.85 |
|
|
59,091 |
|
1,787 |
|
3.03 |
|
|
57,483 |
|
1,866 |
|
3.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks |
934 |
|
|
|
|
987 |
|
|
|
|
983 |
|
|
|
|
Allowance
for loan losses |
(601 |
) |
|
|
|
(622 |
) |
|
|
|
(693 |
) |
|
|
|
Accrued
income and other assets |
4,445 |
|
|
|
|
4,477 |
|
|
|
|
4,796 |
|
|
|
|
Total
assets |
$ |
66,338 |
|
|
|
|
$ |
63,933 |
|
|
|
|
$ |
62,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
market and interest-bearing checking deposits |
$ |
22,891 |
|
24 |
|
0.11 |
|
|
$ |
21,704 |
|
28 |
|
0.13 |
|
|
$ |
20,622 |
|
35 |
|
0.17 |
|
|
Savings
deposits |
1,744 |
|
1 |
|
0.03 |
|
|
1,657 |
|
1 |
|
0.03 |
|
|
1,593 |
|
1 |
|
0.06 |
|
|
Customer
certificates of deposit |
4,869 |
|
18 |
|
0.36 |
|
|
5,471 |
|
23 |
|
0.42 |
|
|
5,902 |
|
31 |
|
0.53 |
|
|
Foreign
office time deposits (d) |
261 |
|
2 |
|
0.82 |
|
|
500 |
|
3 |
|
0.52 |
|
|
412 |
|
3 |
|
0.63 |
|
|
Total
interest-bearing deposits |
29,765 |
|
45 |
|
0.15 |
|
|
29,332 |
|
55 |
|
0.19 |
|
|
28,529 |
|
70 |
|
0.25 |
|
|
Short-term
borrowings |
200 |
|
— |
|
0.04 |
|
|
211 |
|
— |
|
0.07 |
|
|
76 |
|
— |
|
0.12 |
|
|
Medium-
and long-term debt (e) |
2,965 |
|
50 |
|
1.68 |
|
|
3,972 |
|
57 |
|
1.45 |
|
|
4,818 |
|
65 |
|
1.36 |
|
|
Total
interest-bearing sources |
32,930 |
|
95 |
|
0.29 |
|
|
33,515 |
|
112 |
|
0.33 |
|
|
33,423 |
|
135 |
|
0.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing
deposits |
25,019 |
|
|
|
|
22,379 |
|
|
|
|
21,004 |
|
|
|
|
Accrued
expenses and other liabilities |
1,016 |
|
|
|
|
1,074 |
|
|
|
|
1,133 |
|
|
|
|
Total
shareholders’ equity |
7,373 |
|
|
|
|
6,965 |
|
|
|
|
7,009 |
|
|
|
|
Total
liabilities and shareholders’ equity |
$ |
66,338 |
|
|
|
|
$ |
63,933 |
|
|
|
|
$ |
62,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income/rate spread (FTE) |
|
$ |
1,659 |
|
2.56 |
|
|
|
$ |
1,675 |
|
2.70 |
|
|
|
$ |
1,731 |
|
2.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FTE
adjustment (f) |
|
$ |
4 |
|
|
|
|
$ |
3 |
|
|
|
|
$ |
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact
of net noninterest-bearing sources of funds |
|
|
0.14 |
|
|
|
|
0.14 |
|
|
|
|
0.17 |
|
|
Net interest margin (as a
percentage of average earning assets)
(FTE) (a) (c) |
|
|
2.70 |
% |
|
|
|
2.84 |
% |
|
|
|
3.03 |
% |
|
|
|
(a) |
Accretion
of the purchase discount on the acquired loan portfolio of $34
million,
$49
million
and $71 million increased the net interest margin by 6 basis
points, 8 basis
points and 12 basis points in 2014,
2013 and
2012,
respectively. |
|
|
|
(b) |
Nonaccrual
loans are included in average balances reported and in the calculation of
average rates. |
|
|
|
(c) |
Includes
investment securities available-for-sale and investment securities
held-to-maturity. Average rate based on average historical cost. Carrying
value exceeded average historical cost by
$12
million,
$92
million
and $255 million in 2014,
2013 and
2012,
respectively. |
|
|
|
(d) |
Includes
substantially all deposits by foreign depositors; deposits are primarily
in excess of $100,000. |
|
|
|
(e) |
Medium-
and long-term debt average balances included $192 million, $274 million
and $343 million in 2014,
2013 and
2012,
respectively, for the gain attributed to the risk hedged with interest
rate swaps. Interest expense on medium-and long-term debt was reduced by
$72
million
in both 2014 and
2013 and $69
million in 2012, for
the net gains on these fair value hedge
relationships. |
|
|
|
(f) |
The FTE
adjustment is computed using a federal tax rate of
35%. |
RATE/VOLUME
ANALYSIS - FTE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
|
|
|
|
|
|
|
Years
Ended December 31 |
2014/2013 |
|
2013/2012 |
|
|
Increase
(Decrease)
Due to Rate |
Increase
(Decrease)
Due to
Volume (a) |
Net
Increase
(Decrease) |
|
Increase
(Decrease)
Due to Rate |
Increase
(Decrease)
Due to
Volume (a) |
Net
Increase
(Decrease) |
|
Interest
Income (FTE): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
loans |
$ |
(45 |
) |
|
$ |
55 |
|
|
$ |
10 |
|
|
|
$ |
(43 |
) |
|
$ |
57 |
|
|
$ |
14 |
|
|
|
Real
estate construction loans |
(6 |
) |
|
14 |
|
|
8 |
|
|
|
(9 |
) |
|
4 |
|
|
(5 |
) |
|
|
Commercial
mortgage loans |
(32 |
) |
|
(13 |
) |
|
(45 |
) |
|
|
(33 |
) |
|
(32 |
) |
|
(65 |
) |
|
|
Lease
financing |
(8 |
) |
|
— |
|
|
(8 |
) |
|
|
2 |
|
|
(1 |
) |
|
1 |
|
|
|
International
loans |
(1 |
) |
|
3 |
|
|
2 |
|
|
|
1 |
|
|
— |
|
|
1 |
|
|
|
Residential
mortgage loans |
(4 |
) |
|
6 |
|
|
2 |
|
|
|
(7 |
) |
|
5 |
|
|
(2 |
) |
|
|
Consumer
loans |
(2 |
) |
|
4 |
|
|
2 |
|
|
|
(3 |
) |
|
(2 |
) |
|
(5 |
) |
|
|
Total
loans |
$ |
(98 |
) |
(b) |
$ |
69 |
|
|
$ |
(29 |
) |
(b) |
|
(92 |
) |
(b) |
31 |
|
|
(61 |
) |
(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed
securities |
— |
|
|
(4 |
) |
|
(4 |
) |
|
|
(17 |
) |
|
(1 |
) |
|
(18 |
) |
|
|
Other
investment securities |
— |
|
|
— |
|
|
— |
|
|
|
(2 |
) |
|
— |
|
|
(2 |
) |
|
|
Total
investment securities (c) |
— |
|
|
(4 |
) |
|
(4 |
) |
|
|
(19 |
) |
|
(1 |
) |
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
deposits with banks |
— |
|
|
1 |
|
|
1 |
|
|
|
— |
|
|
3 |
|
|
3 |
|
|
|
Other
short-term investments |
(1 |
) |
|
— |
|
|
(1 |
) |
|
|
— |
|
|
(1 |
) |
|
(1 |
) |
|
|
Total
interest income (FTE) |
(99 |
) |
|
66 |
|
|
(33 |
) |
|
|
(111 |
) |
|
32 |
|
|
(79 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
market and interest-bearing checking deposits |
(5 |
) |
|
1 |
|
|
(4 |
) |
|
|
(9 |
) |
|
2 |
|
|
(7 |
) |
|
|
Customer
certificates of deposit |
(3 |
) |
|
(2 |
) |
|
(5 |
) |
|
|
(6 |
) |
|
(2 |
) |
|
(8 |
) |
|
|
Foreign
office time deposits |
1 |
|
|
(2 |
) |
|
(1 |
) |
|
|
— |
|
|
— |
|
|
— |
|
|
|
Total
interest-bearing deposits |
(7 |
) |
|
(3 |
) |
|
(10 |
) |
|
|
(15 |
) |
|
— |
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medium-
and long-term debt |
9 |
|
|
(16 |
) |
|
(7 |
) |
|
|
4 |
|
|
(12 |
) |
|
(8 |
) |
|
|
Total
interest expense |
2 |
|
|
(19 |
) |
|
(17 |
) |
|
|
(11 |
) |
|
(12 |
) |
|
(23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income (FTE) |
$ |
(101 |
) |
|
$ |
85 |
|
|
$ |
(16 |
) |
|
|
$ |
(100 |
) |
|
$ |
44 |
|
|
$ |
(56 |
) |
|
|
|
|
(a) |
Rate/volume
variances are allocated to variances due to
volume. |
|
|
|
(b) |
Reflected
decreases of $15
million
and $22 million in accretion of the purchase discount on the acquired loan
portfolio in 2014 and
2013,
respectively. |
|
|
|
(c) |
Includes
investment securities available-for-sale and investment securities
held-to-maturity. |
NET INTEREST
INCOME
Net interest income is the
difference between interest and yield-related fees earned on assets and interest
paid on liabilities. FTE adjustments are made to the yields on tax-exempt assets
in order to present tax-exempt income and fully taxable income on a comparable
basis. FTE adjustments totaled $4
million in
2014 and $3
million in both
2013 and 2012. Gains and losses related to the
effective portion of risk management interest rate swaps that qualify as hedges
are included with the interest expense of the hedged item. Net interest income
on a FTE basis comprised 66
percent of total
revenues in both 2014
and 2013, and 67
percent in
2012. The “Analysis of Net Interest
Income-Fully Taxable Equivalent” table of this financial review provides an
analysis of net interest income for the years
ended December 31, 2014, 2013, and 2012.
The rate-volume analysis in the table above details the components of the change
in net interest income on a FTE basis for 2014 compared to 2013 and 2013 compared to 2012.
Net interest income was
$1.7
billion in
2014, a decrease of $17
million compared to
2013. The decrease in net interest
income in 2014,
compared to 2013, resulted primarily from a
$15
million decrease in
the accretion of the purchase discount on the acquired loan portfolio. The
benefits from a $2.5
billion, or
4
percent, increase in
average earning assets and lower funding costs were offset by lower loan yields.
The increase in average earning assets primarily reflected increases of
$2.2
billion in average
loans and $583
million in average
interest-bearing deposits with banks, partially offset by a decrease of
$287
million in average
investment securities.
The net interest margin (FTE) in
2014 decreased 14 basis points to 2.70
percent, from 2.84
percent in 2013,
primarily from decreased yields on loans and an increase in Federal Reserve Bank
(FRB) deposits, partially offset by lower deposit rates. The decrease in loan
yields reflected the impact of a competitive rate environment, a decrease in
accretion on the acquired loan portfolio, positive credit quality migration
throughout the portfolio, lower LIBOR rates and the impact of a $9 million
negative residual value adjustment to assets in the leasing portfolio. Accretion
of the purchase discount on the acquired loan portfolio increased the net
interest margin by 6
basis points in 2014,
compared to 8
basis points in 2013.
Average balances deposited with
the FRB were $5.4
billion and
$4.8
billion in
2014 and 2013, respectively, and are included
in “interest-bearing deposits with banks” on the consolidated balance
sheets.
The Corporation utilizes various
asset and liability management strategies to manage net interest income exposure
to interest rate risk. Refer to the “Market and Liquidity Risk” section of this
financial review for additional information regarding the Corporation's asset
and liability management policies.
PROVISION FOR
CREDIT LOSSES
The provision for credit losses
was $27
million in
2014, compared to $46
million in
2013. The provision for credit losses
includes both the provision for loan losses and the provision for credit losses
on lending-related commitments.
The provision for loan losses is
recorded to maintain the allowance for loan losses at the level deemed
appropriate by the Corporation to cover probable credit losses inherent in the
portfolio. The provision for loan losses was $22
million in
2014, compared to $42
million in
2013. Credit quality in the loan
portfolio continued to improve in 2014, compared to 2013. Improvements in credit quality
included a decline of $367
million in the
Corporation's criticized loan list from December 31,
2013 to December 31,
2014. Reflected in
the decline in criticized loans was a decrease in nonaccrual loans of
$77
million. The
Corporation's criticized loan list is consistent with loans in the Special
Mention, Substandard and Doubtful categories defined by regulatory
authorities.
Net loan charge-offs in
2014 decreased $48
million to
$25
million, or
0.05
percent of average
total loans, compared to $73
million, or
0.16
percent, in
2013. The $48
million decrease in
net loan charge-offs in 2014, compared to 2013, reflected decreases in almost
all business lines, with the largest decreases in Commercial Real Estate and
general Middle Market, partially offset by an increase in Technology and Life
Sciences.
The provision for credit losses
on lending-related commitments is recorded to maintain the allowance for credit
losses on lending-related commitments at the level deemed appropriate by the
Corporation to cover probable credit losses inherent in lending-related
commitments. The provision for credit losses on lending-related commitments was
$5
million in
2014, compared to $4
million in
2013. Lending-related commitment
charge-offs were insignificant in 2014 and 2013.
For further discussion of the
allowance for loan losses and the allowance for credit losses on lending-related
commitments, including the methodology used in the determination of the
allowances and an analysis of the changes in the allowances, refer to Note
1
to the consolidated financial statements and the "Credit Risk" section of this
financial review.
NONINTEREST
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
|
Years
Ended December 31 |
2014 |
|
2013 |
|
2012 |
|
Customer-driven
income: |
|
|
|
|
|
|
Service
charges on deposit accounts |
$ |
215 |
|
|
$ |
214 |
|
|
$ |
214 |
|
|
Fiduciary
income |
180 |
|
|
171 |
|
|
158 |
|
|
Commercial
lending fees |
98 |
|
|
99 |
|
|
96 |
|
|
Card
fees |
80 |
|
|
74 |
|
|
65 |
|
|
Letter
of credit fees |
57 |
|
|
64 |
|
|
71 |
|
|
Foreign
exchange income |
40 |
|
|
36 |
|
|
38 |
|
|
Brokerage
fees |
17 |
|
|
17 |
|
|
19 |
|
|
Other
customer-driven income (a) |
81 |
|
|
88 |
|
|
89 |
|
|
Total
customer-driven noninterest income |
768 |
|
|
763 |
|
|
750 |
|
|
Noncustomer-driven
income: |
|
|
|
|
|
|
Bank-owned
life insurance |
39 |
|
|
40 |
|
|
39 |
|
|
Net
securities (losses) gains |
— |
|
|
(1 |
) |
|
12 |
|
|
Other
noncustomer-driven income (a) |
61 |
|
|
80 |
|
|
69 |
|
|
Total
noninterest income |
$ |
868 |
|
|
$ |
882 |
|
|
$ |
870 |
|
|
|
|
(a) |
The
table below provides further details on certain categories included in
other noninterest income. |
Noninterest income decreased
$14
million to
$868
million in
2014, compared to $882
million in
2013, reflecting a $19 million
decrease in noncustomer-driven income categories, partially offset by a
$5
million increase in
customer-driven fees. An analysis of significant year over year changes by
individual line item follows.
Fiduciary income increased
$9
million, or
6
percent, to
$180
million in
2014, compared to $171
million in
2013. Personal and institutional
trust fees are the two major components of fiduciary income. These fees are
based on services provided and assets managed. Fluctuations in the market values
of the underlying assets managed, which include both equity and fixed income
securities, impact fiduciary income. The increase in 2014 was primarily due to
an increase in personal trust fees, largely driven by an increase in the volume
of fiduciary services sold in the professional trust alliance business and the
favorable impact on fees of market value increases.
Card fees, which consist
primarily of interchange fees earned on debit cards and commercial cards,
increased $6
million, or
8
percent, to
$80
million in
2014, compared to $74
million in
2013. The increase in 2014
primarily reflected a volume-driven increase in commercial charge card
interchange revenue.
Letter of credit fees decreased
$7
million, or
12
percent, to
$57
million in
2014, compared to $64
million in
2013. The decrease in 2014
was primarily due to regulatory-driven decreases in the volume of letters of
credit outstanding.
Foreign exchange income
increased $4
million, or
9
percent, to
$40
million in
2014, compared to $36
million in
2013. The increase in 2014
was primarily due to an increase in customer-driven trading volume throughout
the year.
Other noninterest income
decreased $26
million, or
15
percent, to
$142
million in
2014, compared to $168
million in
2013, primarily reflecting decreases
in deferred compensation plan asset returns, income recognized from the
Corporation's third-party credit card provider, securities trading income and
income from principal investing and warrants. The decrease in deferred
compensation plan asset returns was offset by a decrease in deferred
compensation expense in salaries and benefits expense. The decrease in income
from the Corporation's third-party credit card provider was primarily the result
of a change in the timing of the recognition of incentives from annually to
quarterly in the third quarter 2013. The following table illustrates certain
categories included in "other noninterest income" on the consolidated statements
of income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
|
|
|
|
Years
Ended December 31 |
|
2014 |
|
2013 |
|
2012 |
|
Other
noninterest income: |
|
|
|
|
|
|
|
Other
customer-driven income: |
|
|
|
|
|
|
|
Customer
derivative income |
|
$ |
22 |
|
|
$ |
25 |
|
|
$ |
25 |
|
|
Investment
banking fees |
|
18 |
|
|
19 |
|
|
20 |
|
|
All
other customer-driven income |
|
41 |
|
|
44 |
|
|
44 |
|
|
Total
other customer-driven income |
|
81 |
|
|
88 |
|
|
89 |
|
|
Other
noncustomer-driven income: |
|
|
|
|
|
|
|
Securities
trading income |
|
10 |
|
|
14 |
|
|
19 |
|
|
Income
from principal investing and warrants |
|
10 |
|
|
14 |
|
|
8 |
|
|
Income
from third-party credit card provider |
|
9 |
|
|
14 |
|
|
9 |
|
|
Deferred
compensation plan asset returns (a) |
|
6 |
|
|
13 |
|
|
7 |
|
|
All
other noncustomer-driven income |
|
26 |
|
|
25 |
|
|
26 |
|
|
Total
other noncustomer-driven income |
|
61 |
|
|
80 |
|
|
69 |
|
|
Total
other noninterest income |
|
$ |
142 |
|
|
$ |
168 |
|
|
$ |
158 |
|
|
|
|
(a) |
Compensation
deferred by the Corporation's officers is invested based on investment
selections of the officers. Income earned on these assets is reported in
noninterest income and the offsetting increase in liability is reported in
salaries and benefits expense. |
NONINTEREST
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
|
Years
Ended December 31 |
2014 |
|
2013 |
|
2012 |
|
Salaries
and benefits expense |
980 |
|
|
1,009 |
|
|
1,018 |
|
|
Net
occupancy expense |
171 |
|
|
160 |
|
|
163 |
|
|
Equipment
expense |
57 |
|
|
60 |
|
|
65 |
|
|
Outside
processing fee expense |
122 |
|
|
119 |
|
|
107 |
|
|
Software
expense |
95 |
|
|
90 |
|
|
90 |
|
|
Litigation-related
expenses |
4 |
|
|
52 |
|
|
23 |
|
|
FDIC
insurance expense |
33 |
|
|
33 |
|
|
38 |
|
|
Advertising
expense |
23 |
|
|
21 |
|
|
27 |
|
|
Gain
on debt redemption |
(32 |
) |
|
(1 |
) |
|
— |
|
|
Merger
and restructuring charges |
— |
|
|
— |
|
|
35 |
|
|
Other
noninterest expenses |
173 |
|
|
179 |
|
|
191 |
|
|
Total
noninterest expenses |
$ |
1,626 |
|
|
$ |
1,722 |
|
|
$ |
1,757 |
|
Noninterest expenses decreased
$96
million, or
6
percent, to
$1.6
billion in
2014, compared to $1.7
billion in
2013. An analysis of significant
increases and decreases by individual line item is presented below.
Salaries and benefits expense
decreased $29
million, or
3
percent, to
$980
million in
2014, compared to $1.0
billion in
2013. The decrease in salaries and
benefits expense was primarily due to decreases in pension and deferred
compensation expense, partially offset by the impact of merit increases and an
increase in technology-related contract labor expense.
Net occupancy and equipment
expense increased $8
million, or
4
percent, to
$228
million in
2014, compared to $220
million in
2013. The increase was primarily the
result of lease termination charges of $10 million taken in 2014 related to real estate
optimization.
Software expense increased
$5
million, or
6
percent, to
$95
million in
2014, compared to $90
million in
2013. The increase was primarily due to an
increase in amortization expense as a result of the completion of technology
projects throughout the year.
Litigation-related expenses
decreased $48
million to
$4
million in
2014, compared to $52
million in
2013, primarily as a result of the
recognition of a $52 million unfavorable jury verdict on a lender liability case
in 2013. For further information about
legal proceedings, refer to Note 21 to the consolidated financial
statements.
The Corporation recognized a gain
on debt redemption of $32
million in
2014, on the early redemption of a
$150 million subordinated note in the third quarter 2014, primarily from the recognition
of the unamortized value of a related, previously terminated interest rate
swap.
Other noninterest expenses
decreased $6
million, or
4
percent, to
$173
million in
2014, from $179
million in
2013. The decrease primarily
reflected decreases of $5 million in other real estate expense and $5 million in
losses on other foreclosed property, partially offset by an increase of $9
million in charitable contributions to the Comerica Charitable Foundation in
2014.
INCOME TAXES
AND RELATED ITEMS
The provision for income taxes
was $277
million in
2014, compared to $245
million in
2013. The $32
million increase in
the provision for income taxes in 2014, compared to 2013, was due primarily to an
increase in pretax income.
Net deferred tax assets were
$130
million at
December 31,
2014, compared to
$257
million at
December 31,
2013. The
decrease of $127
million resulted
primarily from an increase in net unrealized gains on investment securities
available-for-sale, a 2014 contribution to the defined benefit pension plan net
of an increase in related unrealized losses, legal reserves, accretion of the
purchase discount on the acquired loan portfolio and stock-based compensation
benefits. Deferred tax assets of $408
million were
evaluated for realization and it was determined that no valuation allowance was
needed at both December 31,
2014 and
December 31,
2013. This
conclusion was based on available evidence of loss carryback capacity and
projected future reversals of existing taxable temporary
differences.
2013 RESULTS OF
OPERATIONS COMPARED TO 2012
Net interest income was
$1.7
billion in
2013, a decrease of $56 million
compared to 2012.
The decrease in net interest income in 2013 resulted primarily from a
decrease in yields and a $22 million decrease in the accretion of the purchase
discount on the acquired loan portfolio, partially offset by the benefit from a
$1.6 billion, or 3 percent, increase in average earning assets and lower funding
costs. The increase in average earning assets primarily reflected increases of
$1.1 billion in average loans and $802 million in average interest-bearing
deposits with banks, partially offset by a decrease of $278 million in average
investment securities available-for-sale.
The net interest margin (FTE) in
2013 decreased 19 basis points to
2.84 percent, from 3.03 percent in 2012, primarily from decreased yields
on loans and mortgage-backed investment securities, a decrease in accretion of
the purchase discount on the acquired loan portfolio and an increase in average
balances deposited with the FRB, partially offset by lower deposit rates. The
decrease in loan yields reflected competitive pricing in the low interest rate
environment, a shift in the average loan portfolio mix, largely due to volume
shifts in business mix, as well as lower LIBOR rates, positive credit quality
migration throughout the portfolio, an increase in lower-yielding average
commercial loans and a decrease in higher-yielding commercial mortgage loans.
Yields on mortgage-backed investment securities decreased as a result of
prepayments on higher-yielding securities and new investments in lower-yielding
securities impacted by the lower rate environment. Accretion of the purchase
discount on the acquired loan portfolio increased the net interest margin by 8
basis points in 2013, compared to 12 basis points in
2012. Average balances deposited with
the FRB of $4.8 billion and $4.0 billion in 2013 and 2012, respectively, are included in
“interest-bearing deposits with banks” on the consolidated balance sheets. The
"Analysis of Net Interest Income - Fully Taxable Equivalent (FTE)" and
"Rate/Volume Analysis - FTE" tables under the "Net Interest Income" subheading
in this section above provide an analysis of net interest income (FTE) for
2013 and 2012 and details the components of
the change in net interest income on a FTE basis for 2013 compared to 2012.
The provision for credit losses,
which includes both the provision for loan losses and the provision for credit
losses on lending-related commitments, was $46
million in
2013, compared to $79
million in
2012. The provision for loan losses
was $42 million in 2013 compared to $73 million in
2012. The $31 million decrease in the
provision for loan losses in 2013, when compared to 2012,
resulted primarily from continued improvements in credit quality, including a
decrease of $516 million in the Corporation's criticized loan list. Reflected in
the decline in criticized loans was a decrease in nonaccrual loans of $169
million. Net loan charge-offs in 2013 decreased $97 million to $73
million, or 0.16 percent of average total loans, compared to $170 million, or
0.39 percent, in 2012.
The $97 million decrease in net loan charge-offs in 2013, compared to 2012,
reflected decreases in all geographic markets
and across almost all business
lines. The provision for credit losses on lending-related commitments was $4
million in 2013, compared to $6 million in
2012. The $2 million decrease in the
provision for credit losses on lending-related commitments resulted primarily
from the reduction of specific reserves established in 2012 for set aside/bonded stop loss
commitments related to residential real estate construction credits in the
California market. The reserves for set aside/bonded stop loss commitments were
reduced in 2013 as the underlying commitments
were funded and simultaneously charged-off against the allowance for loan
losses. Lending-related commitment charge-offs were insignificant in
2013 and 2012.
Noninterest income increased
$12
million to
$882
million in
2013, compared to $870
million in
2012. Fiduciary income increased
$13
million, or 8
percent in 2013, primarily due to an increase in
personal trust fees, largely driven by an increase in the volume of fiduciary
services sold and the favorable impact on fees of market value increases.
Commercial lending fees increased $3
million, or 3
percent, primarily due to an increase in fees earned on the unused portion of
lines of credit. Card fees increased $9
million, or 14
percent in 2013, primarily reflecting
volume-driven increases in commercial charge card and debit card interchange
revenue. Letter of credit fees decreased $7
million, or 10
percent in 2013, primarily due to a decrease in
the volume of letters of credit outstanding. Net securities gains (losses)
decreased $13
million in
2013, primarily reflecting a decrease
in gains on the redemption of auction-rate securities. Other noninterest income
increased $10
million, or 7
percent, in 2013, compared to 2012. The increase primarily
reflected increases of $6
million in deferred
compensation plan asset returns, $6
million in income
from principal investing and warrants and $5
million in income
from the Corporation's third-party credit card provider, partially offset by a
$5
million decrease in
income from securities trading. The increase in income from the Corporation's
third-party credit card provider primarily reflected a change in the timing of
the recognition of incentives from annually to quarterly in 2013. Refer to the
table provided under the “Noninterest Income” subheading previously in this
section for the details of certain categories included in other noninterest
income.
Noninterest expenses decreased
$35
million, or 2
percent, in 2013, compared to 2012. Salaries and benefits expense
decreased $9
million in
2013, primarily reflecting reduced
staffing levels and lower executive incentive compensation, partially offset by
increases in deferred compensation expense and defined benefit pension expense,
as well as annual merit increases. Net occupancy expense decreased $8 million,
primarily due to savings associated with leased properties exited in 2012, lower
utility expense and a reduction in equipment depreciation expense, partially
offset by an increase in maintenance expense and an increase in property tax
expense as a result of refunds received in 2012 related to settlements of tax
appeals. Outside processing fee expense increased $12
million in
2013, primarily due to increased
activity tied to fee-based revenue growth, transactional costs related to
increased volume and outsourcing of certain operational functions.
Litigation-related expenses increased $29
million in
2013, primarily reflecting an
increase in legal reserves related to an unfavorable jury verdict on a lender
liability case. FDIC insurance expense decreased $5
million in
2013, primarily the result of lower
assessment rates, reflecting improvements in the Corporation's risk profile used
in determining the quarterly assessment rate. Advertising expense decreased
$6
million in
2013, primarily due to timing changes
related to certain marketing campaigns. Merger and restructuring charges related
to the acquisition of Sterling Bancshares, Inc. in 2011 decreased $35 million
from 2012
as the integration plan was completed. Other noninterest expenses decreased
$12
million in
2013, primarily reflecting decreases
of $7 million in other real estate expenses, $6 million in operational losses,
$7 million in legal fees and $5 million in core deposit intangible amortization,
partially offset by an $8 million decrease in net gains recognized on sales of
assets and a $5 million loss on other foreclosed property in 2013.
The provision for income taxes
increased $4
million to
$245
million in
2013. An increase in taxes due to
increased pretax income in 2013 was largely offset by certain
federal and state tax discrete items and the release of certain tax reserves in
2013.
STRATEGIC
LINES OF BUSINESS
The Corporation's operations are
strategically aligned into three major business segments: the Business Bank, the
Retail Bank and Wealth Management. These business segments are differentiated
based upon the products and services provided. In addition to the three major
business segments, Finance is also reported as a segment. The Other category
includes items not directly associated with these business segments or the
Finance segment. The performance of the business segments is not comparable with
the Corporation's consolidated results and is not necessarily comparable with
similar information for any other financial institution. Additionally, because
of the interrelationships of the various segments, the information presented is
not indicative of how the segments would perform if they operated as independent
entities. Market segment results are also provided for the Corporation's three
primary geographic markets: Michigan, California and Texas. In addition to the
three primary geographic markets, Other Markets is also reported as a market
segment. Note 22 to the consolidated financial
statements describes the Corporation's segment reporting methodology as well as
the business activities of each business segment and presents financial results
of these business segments for the years ended December 31,
2014, 2013 and 2012.
The Corporation's management
accounting system assigns balance sheet and income statement items to each
segment using certain methodologies, which are regularly reviewed and refined.
These methodologies may be modified as the management accounting system is
enhanced and changes occur in the organizational structure and/or product
lines.
In the second quarter 2014, the
Corporation enhanced the approach used to determine the standard reserve factors
used in estimating the allowance for credit losses, which had the effect of
capturing certain elements in the standard reserve component that had formerly
been included in the qualitative assessment. The impact of the change was
largely neutral to the total allowance for loan losses. However, because
standard reserves are allocated to the segments at the loan level, while
qualitative reserves are allocated at the portfolio level, the impact of the
methodology change on the allowance of each segment reflected the
characteristics of the individual loans within each segment's portfolio, causing
segment reserves to increase or decrease accordingly. As a result, the current
year provision for credit losses within each segment is not comparable to prior
year amounts.
BUSINESS
SEGMENTS
The following table presents net
income (loss) by business segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollar
amounts in millions) |
|
|
|
|
|
|
Years
Ended December 31 |
2014 |
|
2013 |
|
2012 |
|
Business
Bank |
$ |
816 |
|
|
86 |
% |
|
$ |
785 |
|
|
86 |
% |
|
$ |
826 |
|
|
88 |
% |
|
Retail
Bank |
43 |
|
|
4 |
|
|
42 |
|
|
5 |
|
|
50 |
|
|
5 |
|
|
Wealth
Management |
91 |
|
|
10 |
|
|
87 |
|
|
9 |
|
|
67 |
|
|
7 |
|
|
|
950 |
|
|
100 |
% |
|
914 |
|
|
100 |
% |
|
943 |
|
|
100 |
% |
|
Finance |
(357 |
) |
|
|
|
(376 |
) |
|
|
|
(382 |
) |
|
|
|
Other
(a) |
— |
|
|
|
|
3 |
|
|
|
|
(40 |
) |
|
|
|
Total |
$ |
593 |
|
|
|
|
$ |
541 |
|
|
|
|
$ |
521 |
|
|
|
(a) Includes
items not directly associated with the three major business segments or the
Finance Division.
The Business Bank's net income of
$816
million in
2014 increased $31
million, compared to
$785
million in
2013. Net interest income (FTE) of
$1.5
billion increased
$9
million in
2014, primarily the result of the
benefit from an increase in average loans of $1.9
billion, an increase
in net funds transfer pricing (FTP) credits and lower deposit costs, partially
offset by lower loan yields, a decrease in accretion of the purchase discount on
the acquired loan portfolio and the impact of a $9 million negative residual
value adjustment to assets in the leasing portfolio. The increase in net FTP
credits primarily reflected the benefit from a $2.4
billion increase in
average deposits in 2014,
compared to 2013.
The provision for credit losses decreased $1
million, to
$53
million in
2014, compared to the prior year.
Provision decreases in Environmental Services, National Dealer Services and
Corporate Banking were mostly offset by increases in Mortgage Banker Finance,
Energy, and Technology and Life Sciences. Net credit-related charge-offs of
$15
million decreased
$28
million in
2014, compared to 2013, primarily reflecting decreases
in Commercial Real Estate, general Middle Market and Environmental Services,
partially offset by an increase in Technology and Life Sciences. Noninterest
income of $376
million in
2014 decreased $6
million from the
prior year, primarily reflecting a $7 million decrease in letter of credit fees
and small decreases in most other categories of noninterest income, partially
offset by a $6 million increase in card fees. Noninterest expenses of
$590
million in
2014 decreased $53
million compared to
the prior year, primarily due to a $50 million decrease in litigation-related
expenses, a $10 million decrease in salaries and benefits expense and a $7
million decrease in expenses related to foreclosed properties, partially offset
by a $14 million increase in corporate overhead expense. The increase in
corporate overhead expense was primarily related to certain actions taken in the
third quarter 2014 including a contribution to the Comerica Charitable
Foundation, charges associated with real estate optimization and several other
efficiency-related actions.
Net income for the Retail Bank of
$43
million in
2014 increased $1
million, compared to
net income of $42
million in
2013. Net interest income (FTE) of
$596
million decreased
$14
million in
2014, primarily due to lower loan
yields, a decrease in accretion of the purchase discount on the acquired loan
portfolio and a decrease in net funds transfer pricing (FTP) credits due to
the lower interest rate
environment, partially offset by the benefit provided by a $135
million increase in
average loans and lower deposit rates. Average deposits increased $463
million. The
provision for credit losses was a benefit of $5
million in
2014, compared to a provision of
$13
million in
2013. Net credit-related charge-offs
of $11
million in
2014 decreased $11
million compared to
2013, reflecting decreases in both
Small Business and Retail Banking. Noninterest income of $167
million in
2014 decreased $8
million compared to
2013, primarily due to a $5 million
decrease in income from the Corporation's third-party credit card provider,
largely reflecting a change in the timing of the recognition of incentives from
annually to quarterly in the third quarter 2013. Noninterest expenses of
$702
million in
2014 decreased $6
million from the
prior year, primarily due to a $5 million decrease in salaries and benefits
expense and small decreases in several other noninterest expense categories,
partially offset by a $7 million increase in corporate overhead expense, largely
for the same reasons as described above in the Business Bank
discussion.
Wealth Management's net income of
$91
million in
2014 increased $4
million, compared to
$87
million in
2013. Net interest income (FTE) of
$186
million in
2014 increased $2
million compared to
2013, as the benefit provided by a
$161
million increase in
average loans was largely offset by a decline in loan yields. Average deposits
increased $259
million. The
provision for credit losses was a benefit of $20
million in
2014, compared to a benefit of
$18
million in
2013. Net credit-related recoveries
were $1
million in
2014, compared to charge-offs of
$8
million in
2013. Noninterest income of
$259
million increased
$7
million from the
prior year, primarily reflecting a $10 million increase in fiduciary income,
partially offset by small decreases in several other categories of noninterest
income. Noninterest expenses of $322
million in
2014 increased $3
million from the
prior year, primarily due to a $5 million increase in corporate overhead expense
and a $5 million increase in litigation-related expenses, partially offset by a
decrease of $8 million in salaries and benefits expense. See the Business Bank
discussion for an explanation of the increase in corporate overhead
expense.
The net loss in the Finance
segment was $357
million in
2014, compared to a net loss of
$376
million in
2013. Net interest expense (FTE) of
$662
million in
2014 increased $9
million, compared to
2013, primarily reflecting an
increase in net FTP expense as a result of higher deposit levels in the business
segments, partially offset by lower net rates paid to the business segments
under the Corporation's internal FTP methodology. Noninterest income of
$60
million in
2014 decreased $1
million compared to
2013. A decrease in noninterest
expenses of $31
million in
2014 was primarily the result of the
third quarter 2014 gain of $32 million on the early redemption of
debt.
MARKET
SEGMENTS
The table and narrative below
present the market segment results, including prior periods, based on the
structure and methodologies in effect at December 31,
2014. Note
22 to these consolidated financial
statements presents a description of each of these market segments as well as
the financial results for the years ended December 31,
2014, 2013 and 2012.
The following table presents net
income (loss) by market segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollar
amounts in millions) |
|
|
|
|
|
|
Years
Ended December 31 |
2014 |
|
2013 |
|
2012 |
|
Michigan |
$ |
297 |
|
|
31 |
% |
|
$ |
261 |
|
|
29 |
% |
|
$ |
315 |
|
|
33 |
% |
|
California |
272 |
|
|
29 |
|
|
268 |
|
|
29 |
|
|
253 |
|
|
27 |
|
|
Texas |
160 |
|
|
17 |
|
|
177 |
|
|
19 |
|
|
181 |
|
|
19 |
|
|
Other
Markets |
221 |
|
|
23 |
|
|
208 |
|
|
23 |
|
|
194 |
|
|
21 |
|
|
|
950 |
|
|
100 |
% |
|
914 |
|
|
100 |
% |
|
943 |
|
|
100 |
% |
|
Finance
& Other (a) |
(357 |
) |
|
|
|
(373 |
) |
|
|
|
(422 |
) |
|
|
|
Total |
$ |
593 |
|
|
|
|
$ |
541 |
|
|
|
|
$ |
521 |
|
|
|
(a) Includes
items not directly associated with the market segments.
The Michigan market's net income
of $297
million in
2014 increased $36
million, compared to
net income of $261
million in
2013. Net interest income (FTE) of
$718
million in
2014 decreased $33
million, primarily
due to lower loan yields, partially due to the impact of a $9 million negative
residual value adjustment to assets in the leasing portfolio and the impact of a
$125
million decrease in
average loans. Average deposits increased $677
million. The
provision for credit losses was a benefit of $32
million in
2014, a decrease of $20 million
compared to a benefit of $12
million in the prior
year. Net credit-related charge-offs of $8
million for
2014 increased $2
million from the
prior year, primarily reflecting increases in general Middle Market and
Commercial Real Estate, partially offset by decreases in most other lines of
business. Noninterest income of $360
million in
2014 increased $3
million from
2013, primarily due to small
increases in several noninterest income categories. Noninterest expenses of
$644
million in
2014 decreased $70
million from the
prior year, primarily reflecting a $47 million decrease in litigation-related
expenses, an $8 million decrease in salaries and benefits expense and small
decreases in several noninterest expense categories, partially offset by a $7
million increase in corporate overhead expenses. See the Business Bank
discussion for an explanation of the increase in corporate overhead
expense.
The California market's net
income of $272
million increased
$4
million in
2014, compared to $268
million in
2013. Net interest income (FTE) of
$722
million for
2014 increased $30
million from the
prior year, primarily due to the benefit provided
by a $1.4
billion increase in
average loans and an increase in net FTP credits, partially offset by lower loan
yields. Average deposits increased $1.4
billion. The
provision for credit losses of $28
million in
2014 increased $10
million from the
prior year, primarily due to an increase in general Middle Market, partially
offset by decreases in almost all other business lines. Net credit-related
charge-offs of $22
million in
2014 decreased $5
million compared to
2013, primarily reflecting decreases
in most lines of business, partially offset by increases in Technology and Life
Sciences and general Middle Market. Noninterest income of $147
million in
2014 decreased $3
million from the
prior year, primarily due to decreases of $3 million each in warrant income and
securities trading income, partially offset by smaller increases in foreign
exchange income, card fees and several other categories of noninterest income.
Noninterest expenses of $401
million in
2014 increased $5
million from the
prior year, primarily reflecting a $7 million increase in corporate overhead
expenses and small increases in several other noninterest expense categories,
partially offset by a $6 million decrease in salaries and benefits expense and a
$5 million decrease in losses related to foreclosed property. See the Business
Bank discussion for an explanation of the increase in corporate overhead
expense.
The Texas market's net income
decreased $17
million to
$160
million in
2014, compared to $177
million in
2013. Net interest income (FTE) of
$542
million in
2014 increased $1
million from the
prior year, primarily due to the benefit provided by a $965
million increase in
average loans and lower deposit rates, partially offset by lower loan yields and
a decrease in accretion of the purchase discount on the acquired loan portfolio.
Average deposits increased $517
million. The
provision for credit losses of $50
million in
2014 increased $15
million from the
prior year, primarily reflecting increases in Energy, Commercial Real Estate and
Technology and Life Sciences, partially offset by a decrease in Small Business.
Refer to the "Allowance for Credit Losses" and "Energy Lending" subheadings in
the Risk Management section of this financial review for a discussion of the
impact of the significant decline in oil and gas prices in the late third and
fourth quarters of 2014 on the Corporation's portfolio of energy-related loans.
Net credit-related charge-offs of $9
million for
2014 decreased $11
million from the
prior year, with decreases in almost all lines of business. Noninterest income
of $129
million in
2014 decreased $3
million from the
prior year, primarily due to a decrease in syndication fees, a component of
commercial lending fees. Noninterest expenses of $369
million in
2014 increased $6
million from
2013, primarily due to an $8 million
increase in corporate overhead expenses, partially offset by small decreases in
several other categories of noninterest expenses. See the Business Bank
discussion, above, for an explanation of the increase in corporate overhead
expense.
Net income in Other Markets of
$221
million in
2014 increased $13
million compared to
$208
million in
2013. Net interest income (FTE) of
$312
million in
2014 decreased $1
million from the
prior year, primarily due to the impact of a decrease in average loans of
$76
million and lower
loan yields, partially offset by an increase in net FTP credits. Average
deposits increased $476
million. The
provision for credit losses decreased $26
million in
2014, compared to the prior year,
primarily reflecting decreases in general Middle Market, Environmental Services
and Commercial Real Estate, partially offset by an increase in Mortgage Banker
Finance. Net credit-related recoveries were $14
million in
2014 compared to net charge-offs of
$20
million in
2013, primarily reflecting decreases
in general Middle Market, Commercial Real Estate and Environmental Services.
Noninterest income of $166
million in
2014 decreased $4
million from the
prior year, primarily reflecting a $5 million decrease in income from the
Corporation's third-party credit card provider, largely due to a change in the
timing of the recognition of incentives from annually to quarterly in the third
quarter 2013 and small decreases in several other noninterest income categories,
partially offset by a $4 million increase in fiduciary income. Noninterest
expenses of $200
million in
2014 increased $3
million compared to
the prior year, primarily due to a $3 million increase in corporate overhead
expenses, a $3 million increase in efficiency-related occupancy expenses and
small increases in several other noninterest expense categories, partially
offset by a $7 million decrease in salaries and benefits expense. See the
Business Banking discussion for an explanation of the increase in corporate
overhead expense.
The net loss for the Finance
& Other category of $357
million in
2014 decreased $16
million compared to
2013, primarily reflecting a $19
million decrease in net loss in the Finance segment, largely due to the third
quarter 2014 gain of $32 million on the early redemption of debt as previously
discussed under the "Business Segments" subheading above.
The following table lists the
Corporation's banking centers by geographic market segment.
|
|
|
|
|
|
|
|
|
|
|
December
31 |
2014 |
|
2013 |
|
2012 |
|
Michigan |
214 |
|
|
216 |
|
|
218 |
|
|
Texas |
135 |
|
|
140 |
|
|
142 |
|
|
California |
104 |
|
|
105 |
|
|
104 |
|
|
Other
Markets: |
|
|
|
|
|
|
Arizona |
18 |
|
|
18 |
|
|
18 |
|
|
Florida |
9 |
|
|
10 |
|
|
11 |
|
|
Canada |
1 |
|
|
1 |
|
|
1 |
|
|
Total
Other Markets |
28 |
|
|
29 |
|
|
30 |
|
|
Total |
481 |
|
|
490 |
|
|
494 |
|
BALANCE SHEET
AND CAPITAL FUNDS ANALYSIS
ANALYSIS OF
INVESTMENT SECURITIES AND LOANS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
|
|
|
|
|
|
|
|
|
|
December
31 |
2014 |
|
2013 |
|
2012 |
|
2011 |
|
2010 |
|
Investment
securities available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury and other U.S. government agency securities |
$ |
526 |
|
|
|
$ |
45 |
|
|
$ |
35 |
|
|
$ |
40 |
|
|
$ |
131 |
|
|
Residential
mortgage-backed securities (a) |
7,274 |
|
(b) |
|
8,926 |
|
|
9,920 |
|
|
9,492 |
|
|
6,709 |
|
|
State
and municipal securities |
23 |
|
|
|
22 |
|
|
23 |
|
|
24 |
|
|
39 |
|
|
Corporate
debt securities |
51 |
|
|
|
56 |
|
|
58 |
|
|
47 |
|
|
27 |
|
|
Equity
and other non-debt securities |
242 |
|
|
|
258 |
|
|
261 |
|
|
501 |
|
|
654 |
|
|
Total
investment securities available-for-sale |
8,116 |
|
|
|
9,307 |
|
|
10,297 |
|
|
10,104 |
|
|
7,560 |
|
|
Investment
securities held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgage-backed securities (a) |
1,935 |
|
(b) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Total
investment securities |
$ |
10,051 |
|
|
|
$ |
9,307 |
|
|
$ |
10,297 |
|
|
$ |
10,104 |
|
|
$ |
7,560 |
|
|
Commercial
loans |
$ |
31,520 |
|
|
|
$ |
28,815 |
|
|
$ |
29,513 |
|
|
$ |
24,996 |
|
|
$ |
22,145 |
|
|
Real
estate construction loans |
1,955 |
|
|
|
1,762 |
|
|
1,240 |
|
|
1,533 |
|
|
2,253 |
|
|
Commercial
mortgage loans |
8,604 |
|
|
|
8,787 |
|
|
9,472 |
|
|
10,264 |
|
|
9,767 |
|
|
Lease
financing |
805 |
|
|
|
845 |
|
|
859 |
|
|
905 |
|
|
1,009 |
|
|
International
loans: |
|
|
|
|
|
|
|
|
|
|
|
Banks
and other financial institutions |
31 |
|
|
|
4 |
|
|
2 |
|
|
18 |
|
|
2 |
|
|
Commercial
and industrial |
1,465 |
|
|
|
1,323 |
|
|
1,291 |
|
|
1,152 |
|
|
1,130 |
|
|
Total
international loans |
1,496 |
|
|
|
1,327 |
|
|
1,293 |
|
|
1,170 |
|
|
1,132 |
|
|
Residential
mortgage loans |
1,831 |
|
|
|
1,697 |
|
|
1,527 |
|
|
1,526 |
|
|
1,619 |
|
|
Consumer
loans: |
|
|
|
|
|
|
|
|
|
|
|
Home
equity |
1,658 |
|
|
|
1,517 |
|
|
1,537 |
|
|
1,655 |
|
|
1,704 |
|
|
Other
consumer |
724 |
|
|
|
720 |
|
|
616 |
|
|
630 |
|
|
607 |
|
|
Total
consumer loans |
2,382 |
|
|
|
2,237 |
|
|
2,153 |
|
|
2,285 |
|
|
2,311 |
|
|
Total
loans |
$ |
48,593 |
|
|
|
$ |
45,470 |
|
|
$ |
46,057 |
|
|
$ |
42,679 |
|
|
$ |
40,236 |
|
|
|
|
(a) |
Issued
and/or guaranteed by U.S. government agencies or U.S. government-sponsored
enterprises. |
|
|
|
(b) |
During
the fourth quarter 2014, the Corporation transferred residential
mortgage-backed securities from available-for sale to
held-to-maturity. |
EARNING
ASSETS
Loans
The following tables provide
information about the change in the Corporation's average loan portfolio in
2014, compared to 2013.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollar
amounts in millions) |
|
|
|
|
Percent
Change |
|
Years
Ended December 31 |
2014 |
|
2013 |
|
Change |
|
|
Average
Loans: |
|
|
|
|
|
|
|
|
Commercial
loans by business line: |
|
|
|
|
|
|
|
|
General
Middle Market |
$ |
10,330 |
|
|
$ |
10,019 |
|
|
$ |
311 |
|
|
3 |
% |
|
National
Dealer Services |
4,012 |
|
|
3,554 |
|
|
458 |
|
|
13 |
|
|
Energy |
3,211 |
|
|
2,871 |
|
|
340 |
|
|
12 |
|
|
Technology
and Life Sciences |
2,396 |
|
|
1,891 |
|
|
505 |
|
|
27 |
|
|
Environmental
Services |
865 |
|
|
741 |
|
|
124 |
|
|
17 |
|
|
Entertainment |
536 |
|
|
591 |
|
|
(55 |
) |
|
(9 |
) |
|
Total
Middle Market |
21,350 |
|
|
19,667 |
|
|
1,683 |
|
|
9 |
|
|
Corporate
Banking |
3,324 |
|
|
3,235 |
|
|
89 |
|
|
3 |
|
|
Mortgage
Banker Finance |
1,301 |
|
|
1,565 |
|
|
(264 |
) |
|
(17 |
) |
|
Commercial
Real Estate |
787 |
|
|
750 |
|
|
37 |
|
|
5 |
|
|
Total
Business Bank commercial loans |
26,762 |
|
|
25,217 |
|
|
1,545 |
|
|
6 |
|
|
Total
Retail Bank commercial loans |
1,561 |
|
|
1,356 |
|
|
205 |
|
|
15 |
|
|
Total
Wealth Management commercial loans |
1,392 |
|
|
1,398 |
|
|
(6 |
) |
|
— |
|
|
Total
commercial loans |
29,715 |
|
|
27,971 |
|
|
1,744 |
|
|
6 |
|
|
Real
estate construction loans |
1,909 |
|
|
1,486 |
|
|
423 |
|
|
28 |
|
|
Commercial
mortgage loans |
8,706 |
|
|
9,060 |
|
|
(354 |
) |
|
(4 |
) |
|
Lease
financing |
834 |
|
|
847 |
|
|
(13 |
) |
|
(2 |
) |
|
International
loans |
1,376 |
|
|
1,275 |
|
|
101 |
|
|
8 |
|
|
Residential
mortgage loans |
1,778 |
|
|
1,620 |
|
|
158 |
|
|
10 |
|
|
Consumer
loans: |
|
|
|
|
|
|
|
|
Home
equity |
1,583 |
|
|
1,505 |
|
|
78 |
|
|
5 |
|
|
Other
consumer |
687 |
|
|
648 |
|
|
39 |
|
|
6 |
|
|
Consumer
loans |
2,270 |
|
|
2,153 |
|
|
117 |
|
|
5 |
|
|
Total
loans |
$ |
46,588 |
|
|
$ |
44,412 |
|
|
$ |
2,176 |
|
|
5 |
% |
|
Average
Loans By Geographic Market: |
|
|
|
|
|
|
|
|
Michigan |
$ |
13,336 |
|
|
$ |
13,461 |
|
|
$ |
(125 |
) |
|
(1 |
)% |
|
California |
15,390 |
|
|
13,978 |
|
|
1,412 |
|
|
10 |
|
|
Texas |
10,954 |
|
|
9,989 |
|
|
965 |
|
|
10 |
|
|
Other
Markets |
6,908 |
|
|
6,984 |
|
|
(76 |
) |
|
(1 |
) |
|
Total
loans |
$ |
46,588 |
|
|
$ |
44,412 |
|
|
$ |
2,176 |
|
|
5 |
% |
Average total loans increased
$2.2
billion, or
5
percent, to
$46.6
billion in
2014, compared to $44.4
billion in
2013, primarily reflecting increases
of $1.7
billion, or
6
percent, in
commercial loans, $423 million,
or 28
percent, in real
estate construction loans and $158
million, or
10
percent, in
residential mortgage loans, partially offset by a decrease of $354 million,
or 4
percent, in
commercial mortgage loans. The $1.7
billion increase in
average commercial loans primarily reflected increases in Technology and Life
Sciences ($505
million), National
Dealer Services ($458 million),
Energy ($340
million) and general
Middle Market ($311
million), partially
offset by a decrease in Mortgage Banker Finance ($264
million). Middle
Market business lines generally serve customers with annual revenue between $20
million and $500 million, while Corporate Banking serves customers with revenue
over $500 million. The decline in Mortgage Banker Finance, which provides
mortgage warehousing lines, primarily reflected a decline in residential
mortgage refinancing activity. Changes in average total loans by geographic
market are provided in the table above.
Commercial real estate loans
comprise real estate construction loans and commercial mortgage loans.The
$69
million increase in
average commercial real estate loans primarily reflected increased construction
loan activity in the Commercial Real Estate business line, which primarily
includes loans to real estate developers, mostly offset by a decrease in
owner-occupied commercial mortgages, which largely reflected payments on
existing loans faster than new commitments were originated and
being drawn. Commercial mortgage
loans are loans where the primary collateral is a lien on any real property.
Real property is generally considered primary collateral if the value of that
collateral represents more than 50 percent of the commitment at loan approval.
Average commercial real estate loans to borrowers in the Commercial Real Estate
business line represented $3.3
billion, or
32
percent of average
total commercial real estate loans, in 2014, compared to $3.0
billion, or
28
percent of average
total commercial real estate loans, in 2013. The remaining $7.3 billion
and $7.6
billion of average
commercial real estate loans in other business lines in 2014 and 2013, respectively, were primarily
loans secured by owner-occupied real estate. For more information on real estate
loans, refer to “Commercial and Residential Real Estate Lending” in the “Risk
Management” section of this financial review.
Total loans were $48.6
billion at
December 31,
2014, an increase of
$3.1
billion from
December 31,
2013, primarily
reflecting an increase of $2.7
billion, or 9
percent, in commercial loans. The increase in commercial loans primarily
reflected increases in Energy ($670 million), Technology and Life Sciences ($601
million), National Dealer Services ($405 million), Mortgage Banker Finance ($377
million) and smaller increases in most other lines of business.
ANALYSIS OF
INVESTMENT SECURITIES PORTFOLIO (FTE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity
(a) |
|
Weighted
Average
Maturity |
|
(dollar
amounts in millions) |
Within
1 Year |
|
1
- 5 Years |
|
5
- 10 Years |
|
After
10 Years |
|
Total |
|
December 31,
2014 |
Amount |
Yield |
|
Amount |
Yield |
|
Amount |
Yield |
|
Amount |
Yield |
|
Amount |
Yield |
|
Years |
|
U.S. Treasury and other U.S.
government agency securities |
$ |
30 |
|
0.27 |
% |
|
$ |
496 |
|
1.66 |
% |
|
$ |
— |
|
— |
% |
|
$ |
— |
|
— |
% |
|
$ |
526 |
|
1.58 |
% |
|
4.7 |
|
|
Residential
mortgage-backed securities (b) |
54 |
|
2.30 |
|
|
291 |
|
2.09 |
|
|
732 |
|
3.53 |
|
|
8,132 |
|
2.13 |
|
|
9,209 |
|
2.24 |
|
|
15.0 |
|
|
State
and municipal securities (c) |
— |
|
— |
|
|
— |
|
— |
|
|
16 |
|
0.34 |
|
|
7 |
|
0.34 |
|
|
23 |
|
0.34 |
|
|
10.0 |
|
|
Corporate
debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction-rate
debt securities |
— |
|
— |
|
|
— |
|
— |
|
|
— |
|
— |
|
|
1 |
|
0.07 |
|
|
1 |
|
0.07 |
|
|
23.0 |
|
|
Other
corporate debt securities |
50 |
|
1.18 |
|
|
— |
|
— |
|
|
— |
|
— |
|
|
— |
|
— |
|
|
50 |
|
1.18 |
|
|
— |
|
|
Equity
and other non-debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction-rate
preferred securities (d) |
— |
|
— |
|
|
— |
|
— |
|
|
— |
|
— |
|
|
112 |
|
0.19 |
|
|
112 |
|
0.19 |
|
|
— |
|
|
Money
market and other mutual funds (e) |
— |
|
— |
|
|
— |
|
— |
|
|
— |
|
— |
|
|
130 |
|
— |
|
|
130 |
|
— |
|
|
— |
|
|
Total
investment securities |
$ |
134 |
|
1.44 |
% |
|
$ |
787 |
|
1.82 |
% |
|
$ |
748 |
|
3.46 |
% |
|
$ |
8,382 |
|
2.11 |
% |
|
$ |
10,051 |
|
2.18 |
% |
|
14.3 |
|
(a)Based on final
contractual maturity.
(b)Issued and/or
guaranteed by U.S. government agencies or U.S. government-sponsored
enterprises.
(c)Auction-rate
securities.
(d)Auction-rate
preferred securities have no contractual maturity; balances are excluded from
the calculation of total weighted average maturity.
(e)Balances are
excluded from the calculation of total yield and weighted average
maturity.
Investment
Securities
Investment securities
increased $744
million to
$10.1
billion at
December 31,
2014, from
$9.3
billion at
December 31,
2013, primarily
reflecting purchases out-pacing paydowns on residential mortgage-backed
investment securities (RMBS) as well as an increase in fair value. Unrealized
gains on investment securities were $79
million at
December 31,
2014, compared to an
unrealized loss of $107 million
at December 31,
2013. At
December 31,
2014, the
weighted-average expected life of the Corporation's residential mortgage-backed
securities portfolio was approximately 4.0 years. On an average basis,
investment securities decreased $287
million to
$9.4
billion in
2014, compared to $9.6
billion in
2013. During the fourth quarter 2014,
the Corporation transferred residential mortgage-backed securities with a fair
value of approximately $2.0 billion from available-for-sale to held-to-maturity.
Management changed its intent with respect to these securities and committed to
hold them to maturity partly in response to the issuance of final liquidity
coverage requirements (LCR) by U.S. banking regulators. Further information
about LCR is provided later in the "Risk Management" section under the
"Wholesale Funding" subheading.
The Corporation has been
purchasing Government National Mortgage Association (GNMA) RMBS to replace
paydowns on RMBS issued by government-sponsored enterprises, as GNMA securities
receive more favorable treatment under LCR rules. The following table provides a
summary of the composition of the Corporation's RMBS portfolio.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2014 |
|
December 31,
2013 |
|
(dollar
amounts in millions) |
Amount |
|
Percent
of Total |
|
Amount |
|
Percent
of Total |
|
RMBS
issued by GNMA |
$ |
2,111 |
|
|
23 |
% |
|
$ |
672 |
|
|
8 |
% |
|
RMBS
issued by government-sponsored enterprises |
7,098 |
|
|
77 |
|
|
8,254 |
|
|
92 |
|
|
Total
RMBS |
$ |
9,209 |
|
|
100 |
% |
|
$ |
8,926 |
|
|
100 |
% |
As of December 31,
2014, the
Corporation's auction-rate securities portfolio was carried at an estimated fair
value of $136
million, compared to
$159
million at
December 31,
2013. During
2014, auction-rate securities with a
par value of $34
million were
redeemed or sold, resulting in net securities gains of $2
million. As of
December 31,
2014, approximately
89 percent of the aggregate auction-rate securities par value had been redeemed
or sold since acquired in 2008 for a cumulative net gain of $54
million.
Short-Term
Investments
Short-term investments include
federal funds sold, interest-bearing deposits with banks and other short-term
investments. Federal funds sold offer supplemental earnings opportunities and
serve correspondent banks. Interest-bearing deposits with banks primarily
include deposits with the FRB and also include deposits with banks in developed
countries or international banking facilities of foreign banks located in the
United States. These investments provide a range of maturities of less than one
year and are mostly used to manage liquidity requirements of the Corporation.
Other short-term investments include trading securities and loans held-for-sale.
Loans held-for-sale typically represent residential mortgage loans originated
with management's intention to sell. Short-term investments decreased
$279
million to
$5.1
billion at
December 31,
2014, compared to
$5.4
billion at
December 31,
2013. On an average
basis, short-term investments increased $580
million to
$5.6
billion in
2014, compared to $5.0
billion in
2013. Average interest-bearing
deposits with banks increased $583
million to
$5.5
billion in
2014, compared to 2013, primarily reflecting a
$596
million increase in
average deposits with the FRB.
DEPOSITS AND
BORROWED FUNDS
The Corporation's average
deposits and borrowed funds balances are detailed in the following
table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollar
amounts in millions) |
|
|
|
|
|
|
Percent
Change |
|
Years
Ended December 31 |
2014 |
|
2013 |
|
Change |
|
|
Noninterest-bearing
deposits |
$ |
25,019 |
|
|
$ |
22,379 |
|
|
$ |
2,640 |
|
|
12 |
% |
|
Money
market and interest-bearing checking deposits |
22,891 |
|
|
21,704 |
|
|
1,187 |
|
|
5 |
|
|
Savings
deposits |
1,744 |
|
|
1,657 |
|
|
87 |
|
|
5 |
|
|
Customer
certificates of deposit |
4,869 |
|
|
5,471 |
|
|
(602 |
) |
|
(11 |
) |
|
Foreign
office and other time deposits |
261 |
|
|
500 |
|
|
(239 |
) |
|
(48 |
) |
|
Total
deposits |
$ |
54,784 |
|
|
$ |
51,711 |
|
|
$ |
3,073 |
|
|
6 |
% |
|
Short-term
borrowings |
$ |
200 |
|
|
$ |
211 |
|
|
$ |
(11 |
) |
|
(6 |
)% |
|
Medium-
and long-term debt |
2,965 |
|
|
3,972 |
|
|
(1,007 |
) |
|
(25 |
) |
|
Total
borrowed funds |
$ |
3,165 |
|
|
$ |
4,183 |
|
|
$ |
(1,018 |
) |
|
(24 |
)% |
Average deposits increased
$3.1
billion, or
6
percent, to
$54.8
billion in
2014, compared to $51.7
billion in
2013. Average deposits increased in
almost all business lines from 2013 to 2014, with the largest increases in
general Middle Market ($962 million), Technology and Life Sciences ($769
million), Retail Banking ($383 million), Commercial Real Estate ($369 million)
and Corporate Banking ($362 million). Average deposits increased in all
geographic markets from 2013 to 2014, including increases in
California ($1.4 billion), Michigan ($677 million), Texas ($517 million) and
Other Markets ($476 million). Average noninterest-bearing deposits increased
$2.6
billion, or
12
percent, to
$25.0
billion in
2014, compared to $22.4
billion in
2013. At December 31,
2014, total deposits
were $57.5
billion, an increase
of $4.2
billion, or
8
percent, compared to
$53.3
billion at
December 31,
2013.
Noninterest-bearing deposits were $27.2
billion at
December 31,
2014, an increase of
$3.3
billion, or
14
percent, compared to
$23.9
billion at
December 31,
2013.
Short-term borrowings primarily
include federal funds purchased and securities sold under agreements to
repurchase. Average short-term borrowings decreased $11
million, to
$200
million in
2014, compared to $211
million in
2013, primarily reflecting a decrease
in securities sold under agreements to repurchase. Total short-term borrowings
at December 31,
2014 were
$116
million, a
decrease of $137
million compared to
$253
million at
December 31,
2013.
Average medium- and long-term
debt decreased $1.0
billion, or
25
percent, to
$3.0
billion in
2014, compared to $4.0
billion in
2013. The Corporation uses medium-
and long-term debt to provide funding to support earning assets. Total medium-
and long-term debt at December 31,
2014 decreased
$864
million to
$2.7
billion, compared to
$3.5
billion at
December 31,
2013. The net
decrease resulted from the maturity or redemption of $1.0 billion of FHLB
advances and $400 million of subordinated notes, partially offset by the
issuances of $250 million of subordinated notes and $350 million of medium-term
notes.
Further information on medium-
and long-term debt is provided in Note 12 to the consolidated financial
statements.
CAPITAL
Total shareholders' equity
increased $252
million to
$7.4
billion at
December 31,
2014, compared to
December 31,
2013. The following
table presents a summary of changes in total shareholders' equity in
2014.
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
|
|
|
Balance
at January 1, 2014 |
|
|
$ |
7,150 |
|
|
Net
income |
|
|
593 |
|
|
Cash
dividends declared on common stock |
|
|
(143 |
) |
|
Purchase
of common stock |
|
|
(260 |
) |
|
Other
comprehensive income (loss): |
|
|
|
|
Investment
securities available-for-sale |
$ |
105 |
|
|
|
|
Defined
benefit and other postretirement plans |
(126 |
) |
|
|
|
Total
other comprehensive income (loss) |
|
|
(21 |
) |
|
Issuance
of common stock under employee stock plans |
|
|
45 |
|
|
Share-based
compensation |
|
|
38 |
|
|
Balance
at December 31, 2014 |
|
|
$ |
7,402 |
|
Further information about other
comprehensive income (loss) is provided in the consolidated statements of
comprehensive income and Note 14 to the consolidated financial
statements.
The Federal Reserve completed its
2014 Comprehensive Capital Analysis
and Review (CCAR) in March 2014 and did not object to the
Corporation's 2014
capital plan and the capital distributions contemplated in the plan. The plan
provides for up to $236 million in share repurchases for the four-quarter period
ending March 31, 2015.
At December 31,
2014, up to $59
million remained available for share repurchases under the plan. Share
repurchases under the share repurchase program totaled $249
million
(5.2
million shares) in
2014. The 2015 capital plan was submitted to
the Federal Reserve for review in January 2015 and a response is expected in
March 2015.
The following table summarizes
the Corporation’s share repurchase activity for the year ended December 31,
2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(shares
in thousands) |
Total Number of Shares and
Warrants Purchased as
Part
of Publicly Announced Repurchase Plans or Programs |
|
Remaining
Repurchase
Authorization (a) |
|
Total Number
of
Shares
Purchased
(b) |
|
Average Price
Paid Per
Share |
|
Average Price
Paid Per
Warrant
(c) |
|
Total
first quarter 2014 |
1,523 |
|
|
16,591 |
|
|
1,703 |
|
|
47.21 |
|
|
— |
|
|
Total
second quarter 2014 |
1,236 |
|
|
16,697 |
|
(d) |
1,273 |
|
|
47.73 |
|
|
— |
|
|
Total
third quarter 2014 |
1,183 |
|
|
15,334 |
|
|
1,186 |
|
|
49.83 |
|
|
— |
|
|
October
2014 |
693 |
|
|
14,640 |
|
|
702 |
|
|
46.55 |
|
|
— |
|
|
November
2014 |
430 |
|
|
14,210 |
|
|
439 |
|
|
48.29 |
|
|
— |
|
|
December
2014 |
128 |
|
|
14,082 |
|
|
129 |
|
|
46.10 |
|
|
— |
|
|
Total
fourth quarter 2014 |
1,251 |
|
|
14,082 |
|
|
1,270 |
|
|
47.11 |
|
|
— |
|
|
Total
2014 |
5,193 |
|
|
14,082 |
|
|
5,432 |
|
|
$ |
47.88 |
|
|
$ |
— |
|
|
|
|
(a) |
Maximum
number of shares and warrants that may yet be purchased under the publicly
announced plans or programs. |
|
|
|
(b) |
Includes
approximately 239,000 shares
(including 19,000 shares
for the quarter ended December 31,
2014)
purchased pursuant to deferred compensation plans and shares purchased
from employees to pay for required minimum tax withholding related to
restricted stock vesting under the terms of an employee share-based
compensation plan during the year ended December 31,
2014.
These transactions are not considered part of the Corporation's
repurchase program. |
|
|
|
(c) |
The
Corporation made no repurchases of warrants under the repurchase program
during the year ended December 31,
2014.
Upon exercise of a warrant, the number of shares with a value equal to the
aggregate exercise price is withheld from an exercising warrant holder as
payment (known as a "net exercise provision"). During the year ended
December 31,
2014,
the Corporation withheld the equivalent of approximately 491,000 shares
to cover an aggregate of $25.1
million
in exercise price and issued approximately 361,000 shares
to the exercising warrant holders. Shares withheld in connection with the
net exercise provision are not included in the total number of shares or
warrants purchased in the above table. |
|
|
|
(d) |
Includes
April 22,
2014
share repurchase authorization for up to an additional 2.0
million
shares. |
In April
2014, the Board of
Directors of the Corporation (the Board) authorized the repurchase of up to an
additional 2.0
million shares of
Comerica Incorporated outstanding common stock, in addition to the 5.1 million
shares remaining at March 31, 2014 under the Board's prior authorizations for
the share repurchase program initially approved in November 2010. Including the
April 2014 authorization, a total of 30.3
million shares has
been authorized for repurchase under the share repurchase program since its
inception. In November 2010, the Board authorized the purchase of up to all
11.5
million of the
Corporation's original outstanding warrants. There is no expiration date for the
Corporation's share repurchase program.
In January 2014, the Board
approved a 12 percent increase in the quarterly cash dividend, to 19 cents
per common share, effective with the April 2014 dividend payment, and in April
2014 approved an additional 5 percent increase, to 20
cents per common
share. The 2014 dividend increases were contemplated in the Corporation's
2014 capital plan. The Corporation
declared common dividends in 2014 totaling $143
million, or
$0.79 per share, on net income of
$593
million, compared to
common dividends totaling $0.68 per share in 2013. The dividend payout ratio,
calculated on a per share basis, was 24
percent in
2014, compared to 23
percent in
2013. Including share repurchases,
the total payout to shareholders was 66
percent in
2014, compared to 76
percent in
2013.
The Corporation assesses capital
adequacy against the risk inherent in the balance sheet, recognizing that
unexpected loss is the common denominator of risk and that common equity has the
greatest capacity to absorb unexpected loss. At December 31,
2014, the
Corporation and its U.S. banking subsidiaries exceeded the capital ratios
required for an institution to be considered “well capitalized” by the standards
developed under the Federal Deposit Insurance Corporation Improvement Act of
1991. Refer to Note 20 to the consolidated financial
statements for further discussion of regulatory capital requirements and capital
ratio calculations. The Corporation periodically conducts stress tests to
evaluate potential impacts to the Corporation's forecasted financial condition
under various economic scenarios. These stress tests are a regular part of the
Corporation's overall risk management and capital planning process. The same
forecasting process is also used by the Corporation to conduct the stress test
that was part of CCAR. For additional information about risk management
processes, refer to the "Risk Management" section of this financial
review.
In July 2013, U.S. banking
regulators issued a final rule for the U.S. adoption of the Basel III regulatory
capital framework. The regulatory framework includes a more conservative
definition of capital, two new capital buffers - a conservation buffer and a
countercyclical buffer, new and more stringent risk weight categories for assets
and off-balance sheet items, and a supplemental leverage ratio. As a banking
organization subject to the standardized approach, the rules are effective for
the Corporation on January 1, 2015, with certain transition provisions fully
phased in on January 1, 2018.
According to the rule, the
Corporation will be subject to the capital conservation buffer of 2.5 percent,
when fully phased in, to avoid restrictions on capital distributions and
discretionary bonuses. However, the rules do not subject the Corporation to the
capital countercyclical buffer of up to 2.5 percent or the supplemental leverage
ratio. The Corporation estimates the December 31,
2014 Tier 1 and
common equity Tier 1 risk-based ratio would be 10.3
percent if
calculated under the final rule, as fully phased in, excluding most elements of
accumulated other comprehensive income from regulatory capital. The
Corporation's December 31,
2014 estimated
common equity Tier 1 and Tier 1 capital ratios exceed the minimum required by
the final rule (7 percent and 8.5 percent, respectively, including the fully
phased-in capital conservation buffer). For a reconcilement of these non-GAAP
financial measures, refer to the "Supplemental Financial Data" section of this
financial review.
On December 9, 2014, U.S. banking
regulators proposed a rule that would establish an additional capital buffer for
banking organizations deemed systemically important to the global financial
system (Globally Systemically Important Bank Holding Companies, or “G-SIB”). The
Corporation would not be considered a G-SIB under the rule as proposed.
RISK
MANAGEMENT
As a result of conducting
business in the normal course, the Corporation assumes various types of risk.
The Corporation's enterprise risk framework provides a process for identifying,
measuring, controlling and managing these risks. This framework incorporates a
risk assessment process, a collection of risk committees that manage the
Corporation's major risk elements, and a risk appetite statement that outlines
the levels and types of risks the Corporation accepts. The Corporation
continuously enhances its enterprise risk framework with additional processes,
tools and systems designed to not only provide management with deeper insight
into the Corporation's various existing and emerging risks in accordance with
its appetite for risk, but also to improve the Corporation's ability to control
those risks and ensure that appropriate consideration is received for the risks
taken.
The Corporation’s front line
employees are responsible for the day to day management of risks including the
identification, assessment, measurement and control of risks encountered as a
part of the normal course of business. Risks are further monitored, measured
and controlled by specialized risk managers for each of the major risk
categories, who aid in the identification, measurement, and control of
organizational risks. The majority of these risk managers report into the
Office of Enterprise Risk. The Office of Enterprise Risk, led by the Chief Risk
Officer, is responsible for designing and managing the Corporation’s enterprise
risk framework and ensures effective risk management oversight. Risk management
committees serve as a point of review and escalation for those risks which may
have risk interdependencies or where risk levels may be nearing the limits
outlined in the Corporation’s risk appetite statement. These committees
comprise senior and executive management that represent views from both the
lines of business and risk management. Internal Audit monitors and assesses the
overall effectiveness of the risk management framework on an ongoing basis and
provides an independent assessment of the Corporation’s ability to manage and
control risk to management and the Audit Committee of the Board.
The Enterprise-Wide Risk
Management Committee, established by the Enterprise Risk Committee of the Board,
is responsible for governance over the risk management framework, providing
oversight in managing the Corporation's aggregate risk position and reporting on
the comprehensive portfolio of risks as well as the potential impact these risks
can have on the Corporation's risk profile and resulting capital level. The
Enterprise-Wide Risk Management Committee is principally composed of senior
officers and executives representing the different risk areas and business units
who are appointed by the Chairman and Chief Executive Officer of the
Corporation.
The Board's Enterprise Risk
Committee meets quarterly and is chartered to assist the Board in promoting the
best interests of the Corporation by overseeing policies, procedures and risk
practices relating to enterprise-wide risk and ensuring compliance with bank
regulatory obligations. Members of the Enterprise Risk Committee are selected
such that the committee comprises individuals whose experiences and
qualifications can lead to broad and informed views on risk matters facing the
Corporation and the financial services industry. These include, but are not
limited to, existing and emerging risk matters related to credit, market,
liquidity, operational, compliance and strategic conditions. A comprehensive
risk report is submitted to the Enterprise Risk Committee each quarter providing
management's view of the Corporation's aggregate risk position.
Further discussion and analyses
of each major risk area are included in the following sub-sections of the Risk
Management section in this financial review.
CREDIT
RISK
Credit risk represents the risk
of loss due to failure of a customer or counterparty to meet its financial
obligations in accordance with contractual terms. The governance structure is
administered through the Strategic Credit Committee. The Strategic Credit
Committee is chaired by the Chief Credit Officer and approves recommendations to
address credit risk matters through credit policy, credit risk management
practices, and required credit risk actions. The Strategic Credit Committee also
ensures a comprehensive reporting of credit risk levels and trends, including
exception levels, along with identification and mitigation of emerging risks. In
order to facilitate the corporate credit risk management process, various other
corporate functions provide the resources for the Strategic Credit Committee to
carry out its responsibilities. The Corporation manages credit risk through
underwriting, periodically reviewing and approving its credit exposures using
approved credit policies and guidelines. Additionally, the Corporation manages
credit risk through loan portfolio diversification, limiting exposure to any
single industry, customer or guarantor, and selling participations and/or
syndicating credit exposures above those levels it deems prudent to third
parties.
Credit Administration provides
the resources to manage the line of business transactional credit risk, assuring
that all exposure is risk rated according to the requirements of the credit risk
rating policy and providing business segment reporting support as necessary. The
Corporation's Asset Quality Review function, a division of Internal Audit,
audits the accuracy of internal risk ratings that are assigned by the lending
and credit groups. The Special Assets Group is responsible for managing the
recovery process on distressed or defaulted loans and loan sales.
Portfolio Risk Analytics, of the
Office of Enterprise Risk, provides comprehensive reporting on portfolio credit
risk levels and trends, continuous assessment and verification of risk rating
models, quarterly calculation of the allowance for loan losses
and the allowance for credit
losses on lending-related commitments, calculation of economic credit risk
capital and management of credit policy to ensure it remains current, relevant
and provides comprehensive coverage of credit risk.
ANALYSIS OF
THE ALLOWANCE FOR LOAN LOSSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollar
amounts in millions) |
|
|
|
|
|
|
|
|
|
|
Years
Ended December 31 |
2014 |
|
2013 |
|
2012 |
|
2011 |
|
2010 |
|
Balance
at beginning of year |
$ |
598 |
|
|
$ |
629 |
|
|
$ |
726 |
|
|
$ |
901 |
|
|
$ |
985 |
|
|
Loan
charge-offs: |
|
|
|
|
|
|
|
|
|
|
Commercial |
59 |
|
|
91 |
|
|
112 |
|
|
192 |
|
|
195 |
|
|
Real
estate construction |
— |
|
|
3 |
|
|
8 |
|
|
37 |
|
|
179 |
|
|
Commercial
mortgage |
22 |
|
|
36 |
|
|
89 |
|
|
139 |
|
|
191 |
|
|
Lease
financing |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1 |
|
|
International |
6 |
|
|
— |
|
|
3 |
|
|
7 |
|
|
8 |
|
|
Residential
mortgage |
2 |
|
|
4 |
|
|
13 |
|
|
15 |
|
|
14 |
|
|
Consumer |
13 |
|
|
19 |
|
|
20 |
|
|
33 |
|
|
39 |
|
|
Total
loan charge-offs |
102 |
|
|
153 |
|
|
245 |
|
|
423 |
|
|
627 |
|
|
Recoveries: |
|
|
|
|
|
|
|
|
|
|
Commercial |
34 |
|
|
42 |
|
|
39 |
|
|
33 |
|
|
25 |
|
|
Real
estate construction |
4 |
|
|
7 |
|
|
6 |
|
|
14 |
|
|
11 |
|
|
Commercial
mortgage |
28 |
|
|
20 |
|
|
18 |
|
|
26 |
|
|
16 |
|
|
Lease
financing |
2 |
|
|
1 |
|
|
— |
|
|
11 |
|
|
5 |
|
|
International |
— |
|
|
— |
|
|
2 |
|
|
5 |
|
|
1 |
|
|
Residential
mortgage |
4 |
|
|
4 |
|
|
2 |
|
|
2 |
|
|
1 |
|
|
Consumer |
5 |
|
|
6 |
|
|
8 |
|
|
4 |
|
|
4 |
|
|
Total
recoveries |
77 |
|
|
80 |
|
|
75 |
|
|
95 |
|
|
63 |
|
|
Net
loan charge-offs |
25 |
|
|
73 |
|
|
170 |
|
|
328 |
|
|
564 |
|
|
Provision
for loan losses |
22 |
|
|
42 |
|
|
73 |
|
|
153 |
|
|
480 |
|
|
Foreign
currency translation adjustment |
(1 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Balance
at end of year |
$ |
594 |
|
|
$ |
598 |
|
|
$ |
629 |
|
|
$ |
726 |
|
|
$ |
901 |
|
|
Net loan charge-offs during
the year as a percentage of average loans outstanding during the
year |
0.05 |
% |
|
0.16 |
% |
|
0.39 |
% |
|
0.82 |
% |
|
1.39 |
% |
Allowance for
Credit Losses
The allowance for credit losses
includes both the allowance for loan losses and the allowance for credit losses
on lending-related commitments. The allowance for loan losses represents
management's assessment of probable, estimable losses inherent in the
Corporation's loan portfolio. The allowance for credit losses on lending-related
commitments, included in "accrued expenses and other liabilities" on the
consolidated balance sheets, provides for probable losses inherent in
lending-related commitments, including unused commitments to extend credit and
standby letters of credit. Refer to Note 1 to the consolidated financial
statements for a discussion of the methodology used in the determination of the
allowance for credit losses.
The initial estimate of fourth
quarter 2014 real annualized Gross Domestic Product (GDP) growth of 2.6 percent
showed that growth in the U.S. economy eased at the end of the year, largely
reflecting lower government spending and fixed business investments, after
strong second and third quarters. Real annualized GDP growth in the second and
third quarters of 2014 exceeded 4.5 percent, and job growth at year-end brought
the U.S. unemployment rate down to 5.6 percent in December. Many U.S. metrics,
including the unemployment rate, are returning to healthier levels. Both
consumer and business confidence measures finished the year at levels not seen
since before the Great Recession, and auto sales trended up to finish the year
on par with recent cyclical highs. In contrast to the improving trends in U.S.
economic indicators through 2014, many global indicators softened. The eurozone
economy slumped in the second half of 2014, as did Japan's. Global uncertainty,
coinciding with stimulatory monetary policy by the European Central Bank and the
bank of Japan, kept downward pressure on U.S. interest rates, even as the U.S.
Federal Reserve ended its bond buying program. Falling oil and gas prices
through the second half of 2014 added to financial market uncertainty. The
Corporation believes it has reached near cycle-low levels of criticized loans
and loan charge-offs. This is balanced by continued loan growth at the
Corporation and industry wide. While overall credit quality of the loan
portfolio remained strong through the end of 2014, economic complexity and
uncertainty continued to be a consideration when determining the appropriateness
of the allowance for loan losses.
An analysis of the coverage of
the allowance for loan losses is provided in the following table.
|
|
|
|
|
|
|
|
|
|
|
Years
Ended December 31 |
2014 |
|
2013 |
|
2012 |
|
Allowance
for loan losses as a percentage of total loans at end of
year |
1.22 |
% |
|
1.32 |
% |
|
1.37 |
% |
|
Allowance for loan losses
as a percentage of total nonperforming loans at end of
year |
205 |
|
|
160 |
|
|
116 |
|
|
Allowance for loan losses
as a multiple of total net loan charge-offs for the year |
23.5x |
|
|
8.2x |
|
|
3.7x |
|
The allowance for loan losses was
$594
million at
December 31,
2014, compared to
$598
million at
December 31,
2013, a decrease of
$4
million, or
1
percent resulting
primarily from an increase in credit quality in the loan portfolio, partially
offset by higher loan balances. The $4
million decrease in
the allowance for loan losses primarily reflected decreased reserves in
Corporate Banking, Private Banking, and Small Business, partially offset by
increased reserves in Energy and Technology and Life Sciences. By market,
reserves decreased in Michigan and Other Markets and increased in Texas
(primarily due to Energy) and California.
Oil and gas prices declined
significantly in the late third and fourth quarters of 2014. While no adverse
trends had been noted in the internal risk ratings of borrowers in the Energy
portfolio at December 31, 2014, some borrowers could be adversely impacted from
this event, resulting in incurred losses that have yet to emerge in the
portfolio. Accordingly, in addition to the reserves resulting from the
application of standard reserve factors to the portfolio of energy-related loans
at December 31, 2014, the Corporation included a qualitative adjustment to the
allowance for credit losses. In developing the qualitative adjustment,
management considered a range of possible outcomes for probability of default,
loss given default and the loss emergence period, as well as historical
migration and loss experience under similar economic conditions. The additional
reserve on Middle Market- Energy loans resulting from the qualitative adjustment
was approximately 60 basis points of outstanding Middle Market - Energy loan
balances at December 31, 2014. Refer to the "Energy Lending" subheading later in
this section for further discussion of the Corporation's portfolio of
energy-related loans.
Acquired loans were initially
recorded at fair value, which included an estimate of credit losses expected to
be realized over the remaining lives of the loans, and therefore no
corresponding allowance for loan losses was recorded for these loans at
acquisition. Methods utilized to estimate the required allowance for loan losses
for acquired loans not deemed credit-impaired at acquisition are similar to
originated loans; however, the estimate of loss is based on the unpaid principal
balance less the remaining purchase discount, either on an individually
evaluated basis or based on the pool of acquired loans not deemed
credit-impaired at acquisition within each risk rating, as applicable. At
December 31,
2014, there was a $1
million allowance for loan losses on acquired loans not deemed credit-impaired
and $12 million of purchase discount remained, compared to no allowance for loan
losses and $21 million of remaining purchase discount at December 31,
2013.
ALLOCATION OF
THE ALLOWANCE FOR LOAN LOSSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
2013 |
|
2012 |
|
2011 |
|
2010 |
(dollar
amounts in millions) |
Allocated
Allowance |
Allowance
Ratio (a) |
% (b) |
|
Allocated
Allowance |
% (b) |
|
Allocated
Allowance |
% (b) |
|
Allocated
Allowance |
% (b) |
|
Allocated
Allowance |
% (b) |
|
December
31 |
|
|
|
|
|
Business
loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
$ |
388 |
|
1.23 |
% |
65 |
% |
|
$ |
346 |
|
63 |
% |
|
$ |
297 |
|
63 |
% |
|
$ |
303 |
|
58 |
% |
|
$ |
422 |
|
54 |
% |
|
Real
estate construction |
20 |
|
0.99 |
|
4 |
|
|
16 |
|
4 |
|
|
16 |
|
3 |
|
|
48 |
|
4 |
|
|
102 |
|
6 |
|
|
Commercial
mortgage |
120 |
|
1.39 |
|
18 |
|
|
159 |
|
19 |
|
|
227 |
|
21 |
|
|
281 |
|
24 |
|
|
272 |
|
24 |
|
|
Lease
financing |
2 |
|
0.29 |
|
1 |
|
|
4 |
|
2 |
|
|
4 |
|
2 |
|
|
7 |
|
2 |
|
|
8 |
|
3 |
|
|
International |
4 |
|
0.30 |
|
3 |
|
|
6 |
|
3 |
|
|
8 |
|
3 |
|
|
9 |
|
3 |
|
|
20 |
|
3 |
|
|
Total
business loans |
534 |
|
1.20 |
|
91 |
|
|
531 |
|
91 |
|
|
552 |
|
92 |
|
|
648 |
|
91 |
|
|
824 |
|
90 |
|
|
Retail
loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgage |
14 |
|
0.77 |
|
4 |
|
|
17 |
|
4 |
|
|
20 |
|
3 |
|
|
21 |
|
4 |
|
|
29 |
|
4 |
|
|
Consumer |
46 |
|
1.94 |
|
5 |
|
|
50 |
|
5 |
|
|
57 |
|
5 |
|
|
57 |
|
5 |
|
|
48 |
|
6 |
|
|
Total
retail loans |
60 |
|
1.43 |
|
9 |
|
|
67 |
|
9 |
|
|
77 |
|
8 |
|
|
78 |
|
9 |
|
|
77 |
|
10 |
|
|
Total
loans |
$ |
594 |
|
1.22 |
% |
100 |
% |
|
$ |
598 |
|
100 |
% |
|
$ |
629 |
|
100 |
% |
|
$ |
726 |
|
100 |
% |
|
$ |
901 |
|
100 |
% |
|
|
|
(a) |
Allocated
allowance as a percentage of related loans
outstanding. |
|
|
|
(b) |
Loans
outstanding as a percentage of total
loans. |
The allowance for credit losses
on lending-related commitments includes specific allowances, based on individual
evaluations of certain letters of credit in a manner consistent with business
loans, and allowances based on the pool of the remaining letters of credit and
all unused commitments to extend credit within each internal risk
rating.
The allowance for credit losses
on lending-related commitments was $41
million at
December 31,
2014 compared to
$36
million at
December 31,
2013. The
$5
million increase in
the allowance for credit losses on lending-related commitments reflected
increases in both the reserves for unused commitments to extend credit and
reserves for standby letters of credit. An analysis of changes in the allowance
for credit losses on lending-related commitments is presented
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollar
amounts in millions) |
|
|
|
|
|
|
|
|
|
|
Years
Ended December 31 |
2014 |
|
2013 |
|
2012 |
|
2011 |
|
2010 |
|
Balance
at beginning of year |
$ |
36 |
|
|
$ |
32 |
|
|
$ |
26 |
|
|
$ |
35 |
|
|
$ |
37 |
|
|
Add: Provision for credit
losses on lending-related commitments |
5 |
|
|
4 |
|
|
6 |
|
|
(9 |
) |
|
(2 |
) |
|
Balance
at end of year |
$ |
41 |
|
|
$ |
36 |
|
|
$ |
32 |
|
|
$ |
26 |
|
|
$ |
35 |
|
For additional information
regarding the allowance for credit losses, refer to the "Critical Accounting
Policies" section of this financial review and Notes 1 and 4 to the consolidated financial
statements.
Nonperforming
Assets
Nonperforming assets include
loans on nonaccrual status, troubled debt restructured loans (TDRs) which have
been renegotiated to less than the original contractual rates (reduced-rate
loans) and foreclosed property. TDRs include performing and nonperforming loans.
Nonperforming TDRs are either on nonaccrual or reduced-rate status.
Nonperforming assets do not include purchased credit impaired (PCI)
loans.
SUMMARY OF
NONPERFORMING ASSETS AND PAST DUE LOANS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollar
amounts in millions) |
|
|
|
|
|
|
|
|
|
|
December
31 |
2014 |
|
2013 |
|
2012 |
|
2011 |
|
2010 |
|
Nonaccrual
loans: |
|
|
|
|
|
|
|
|
|
|
Business
loans: |
|
|
|
|
|
|
|
|
|
|
Commercial |
$ |
109 |
|
|
$ |
81 |
|
|
$ |
103 |
|
|
$ |
237 |
|
|
$ |
252 |
|
|
Real
estate construction |
2 |
|
|
21 |
|
|
33 |
|
|
101 |
|
|
263 |
|
|
Commercial
mortgage |
95 |
|
|
156 |
|
|
275 |
|
|
427 |
|
|
483 |
|
|
Lease
financing |
— |
|
|
— |
|
|
3 |
|
|
5 |
|
|
7 |
|
|
International |
— |
|
|
4 |
|
|
— |
|
|
8 |
|
|
2 |
|
|
Total
nonaccrual business loans |
206 |
|
|
262 |
|
|
414 |
|
|
778 |
|
|
1,007 |
|
|
Retail
loans: |
|
|
|
|
|
|
|
|
|
|
Residential
mortgage |
36 |
|
|
53 |
|
|
70 |
|
|
71 |
|
|
55 |
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
Home
equity |
30 |
|
|
33 |
|
|
31 |
|
|
5 |
|
|
5 |
|
|
Other
consumer |
1 |
|
|
2 |
|
|
4 |
|
|
6 |
|
|
13 |
|
|
Total
consumer |
31 |
|
|
35 |
|
|
35 |
|
|
11 |
|
|
18 |
|
|
Total
nonaccrual retail loans |
67 |
|
|
88 |
|
|
105 |
|
|
82 |
|
|
73 |
|
|
Total
nonaccrual loans |
273 |
|
|
350 |
|
|
519 |
|
|
860 |
|
|
1,080 |
|
|
Reduced-rate
loans |
17 |
|
|
24 |
|
|
22 |
|
|
27 |
|
|
43 |
|
|
Total
nonperforming loans |
290 |
|
|
374 |
|
|
541 |
|
|
887 |
|
|
1,123 |
|
|
Foreclosed
property |
10 |
|
|
9 |
|
|
54 |
|
|
94 |
|
|
112 |
|
|
Total
nonperforming assets |
$ |
300 |
|
|
$ |
383 |
|
|
$ |
595 |
|
|
$ |
981 |
|
|
$ |
1,235 |
|
|
Gross interest income that
would have been recorded had the nonaccrual and reduced-rate loans
performed in accordance with original terms |
$ |
25 |
|
|
$ |
34 |
|
|
$ |
62 |
|
|
$ |
74 |
|
|
$ |
87 |
|
|
Interest
income recognized |
6 |
|
|
5 |
|
|
5 |
|
|
11 |
|
|
18 |
|
|
Nonperforming
loans as a percentage of total loans |
0.60 |
% |
|
0.82 |
% |
|
1.17 |
% |
|
2.08 |
% |
|
2.79 |
% |
|
Nonperforming assets as a
percentage of total loans and foreclosed property |
0.62 |
|
|
0.84 |
|
|
1.29 |
|
|
2.29 |
|
|
3.06 |
|
|
Loans
past due 90 days or more and still accruing |
$ |
5 |
|
|
$ |
16 |
|
|
$ |
23 |
|
|
$ |
58 |
|
|
$ |
62 |
|
|
Loans past due 90 days or
more and still accruing as a percentage of total loans |
0.01 |
% |
|
0.03 |
% |
|
0.05 |
% |
|
0.14 |
% |
|
0.15 |
% |
Nonperforming assets decreased
$83
million to
$300
million at
December 31,
2014, from
$383
million at
December 31,
2013. The decrease
in nonperforming assets primarily reflected decreases in nonaccrual commercial
mortgage loans ($61
million), real
estate construction loans ($19
million) and
residential mortgage loans ($17
million), partially
offset by an increase in nonaccrual commercial loans ($28
million).
Nonperforming assets as a percentage of total loans and foreclosed property was
0.62
percent at
December 31,
2014, compared to
0.84
percent at
December 31,
2013.
The following table presents a
summary of changes in nonaccrual loans.
|
|
|
|
|
|
|
|
|
(in
millions) |
|
|
|
|
Years
Ended December 31 |
2014 |
|
2013 |
|
Balance
at beginning of period |
$ |
350 |
|
|
$ |
519 |
|
|
Loans
transferred to nonaccrual (a) |
167 |
|
|
144 |
|
|
Nonaccrual
business loan gross charge-offs (b) |
(87 |
) |
|
(117 |
) |
|
Loans
transferred to accrual status (a) |
(18 |
) |
|
— |
|
|
Nonaccrual
business loans sold (c) |
(36 |
) |
|
(47 |
) |
|
Payments/other
(d) |
(103 |
) |
|
(149 |
) |
|
Balance
at end of period |
$ |
273 |
|
|
$ |
350 |
|
|
(a) Based on an analysis of
nonaccrual loans with book balances greater than $2
million. |
(b)
Analysis of gross loan charge-offs: |
|
|
|
|
Nonaccrual
business loans |
$ |
87 |
|
|
$ |
117 |
|
|
Performing
criticized loans |
— |
|
|
13 |
|
|
Retail
loans |
15 |
|
|
23 |
|
|
Total
gross loan charge-offs |
$ |
102 |
|
|
$ |
153 |
|
|
(c)
Analysis of loans sold: |
|
|
|
|
Nonaccrual
business loans |
$ |
36 |
|
|
$ |
47 |
|
|
Performing
criticized loans |
19 |
|
|
105 |
|
|
Total
loans sold |
$ |
55 |
|
|
$ |
152 |
|
|
(d) Includes net changes
related to nonaccrual loans with balances less than $2 million, payments
on nonaccrual loans with book balances greater than $2 million, transfers
of nonaccrual loans to foreclosed property and retail loan gross
charge-offs. Excludes business loan gross charge-offs and nonaccrual
business loans sold. |
There were 20
borrowers
with balances
greater than $2 million, totaling $167
million, transferred
to nonaccrual status in 2014, an increase of $23
million when
compared to $144
million in
2013. Of the transfers to nonaccrual
greater than $2 million in 2014, $118 million were from Middle
Market. The following table presents a summary of nonaccrual loans at
December 31,
2014 and loans
transferred to nonaccrual and net loan charge-offs for the year ended
December 31,
2014, based on North
American Industry Classification System (NAICS) categories.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2014 |
|
Year
Ended December 31, 2014 |
|
(dollar
amounts in millions) |
Nonaccrual Loans |
|
Loans Transferred to
Nonaccrual (a) |
|
Net Loan Charge-Offs
(Recoveries) |
|
Industry
Category |
|
|
|
Real
Estate and Home Builders |
$ |
44 |
|
|
16 |
% |
|
$ |
29 |
|
|
17 |
% |
|
$ |
(3 |
) |
|
(12 |
)% |
|
Services |
44 |
|
|
16 |
|
|
26 |
|
|
16 |
|
|
(1 |
) |
|
(4 |
) |
|
Residential
Mortgage |
36 |
|
|
13 |
|
|
— |
|
|
— |
|
|
(2 |
) |
|
(8 |
) |
|
Contractors |
32 |
|
|
12 |
|
|
30 |
|
|
18 |
|
|
1 |
|
|
4 |
|
|
Retail
Trade |
20 |
|
|
7 |
|
|
15 |
|
|
9 |
|
|
10 |
|
|
40 |
|
|
Health
Care and Social Assistance |
18 |
|
|
7 |
|
|
13 |
|
|
8 |
|
|
— |
|
|
— |
|
|
Holding
and Other Investment Companies |
14 |
|
|
5 |
|
|
4 |
|
|
2 |
|
|
(8 |
) |
|
(32 |
) |
|
Manufacturing |
8 |
|
|
3 |
|
|
10 |
|
|
6 |
|
|
18 |
|
|
72 |
|
|
Natural
Resources |
5 |
|
|
2 |
|
|
— |
|
|
— |
|
|
(1 |
) |
|
(4 |
) |
|
Restaurants
and Food Service |
5 |
|
|
2 |
|
|
— |
|
|
— |
|
|
1 |
|
|
4 |
|
|
Transportation
and Warehousing |
3 |
|
|
1 |
|
|
22 |
|
|
13 |
|
|
2 |
|
|
8 |
|
|
Finance |
3 |
|
|
1 |
|
|
— |
|
|
— |
|
|
(4 |
) |
|
(16 |
) |
|
Wholesale
Trade |
2 |
|
|
1 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Information
and Communication |
2 |
|
|
1 |
|
|
3 |
|
|
2 |
|
|
— |
|
|
— |
|
|
Hotels |
1 |
|
|
— |
|
|
10 |
|
|
6 |
|
|
3 |
|
|
12 |
|
|
Other
(b) |
36 |
|
|
13 |
|
|
5 |
|
|
3 |
|
|
9 |
|
|
36 |
|
|
Total |
$ |
273 |
|
|
100 |
% |
|
$ |
167 |
|
|
100 |
% |
|
$ |
25 |
|
|
100 |
% |
|
|
|
(a) |
Based on
an analysis of nonaccrual loans with book balances greater than $2
million. |
|
|
|
(b) |
Consumer,
excluding residential mortgage and certain personal purpose nonaccrual
loans and net charge-offs, are included in the “Other”
category. |
The following table presents the
composition of nonaccrual loans by balance and the related number of borrowers
at December 31,
2014 and
2013.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
2013 |
|
(dollar
amounts in millions) |
Number
of
Borrowers |
|
Balance |
|
Number
of
Borrowers |
|
Balance |
|
Under
$2 million |
1,492 |
|
|
$ |
154 |
|
|
1,756 |
|
|
$ |
211 |
|
|
$2
million - $5 million |
15 |
|
|
48 |
|
|
23 |
|
|
71 |
|
|
$5
million - $10 million |
3 |
|
|
22 |
|
|
3 |
|
|
23 |
|
|
$10
million - $25 million |
2 |
|
|
23 |
|
|
3 |
|
|
45 |
|
|
Greater
than $25 million |
1 |
|
|
26 |
|
|
— |
|
|
— |
|
|
Total
|
1,513 |
|
|
$ |
273 |
|
|
1,785 |
|
|
$ |
350 |
|
The following table presents a
summary of TDRs at December 31,
2014 and
2013.
|
|
|
|
|
|
|
|
|
|
(in
millions) |
2014 |
|
2013 |
|
Nonperforming
TDRs: |
|
|
|
|
Nonaccrual
TDRs |
$ |
58 |
|
|
$ |
100 |
|
|
Reduced-rate
TDRs |
17 |
|
|
24 |
|
|
Total
nonperforming TDRs |
75 |
|
|
124 |
|
|
Performing
TDRs (a) |
43 |
|
|
57 |
|
|
Total
TDRs |
$ |
118 |
|
|
$ |
181 |
|
|
|
|
(a) |
TDRs
that do not include a reduction in the original contractual interest rate
which are performing in accordance with their modified
terms. |
Performing TDRs included $23
million of commercial mortgage loans (primarily in Small Business and Commercial
Real Estate) and $20 million of commercial loans (primarily in Middle Market and
Small Business) at December 31,
2014.
Loans past due 90 days or more
and still accruing interest generally represent loans that are well
collateralized and in a continuing process of collection. Loans past due 90 days
or more decreased $11 million
to $5
million at
December 31,
2014, compared to
$16
million at
December 31,
2013. Loans past due
30-89 days increased
$36
million to
$163
million at
December 31,
2014, compared to
$127
million at
December 31,
2013. An aging
analysis of loans included in Note 4 to the consolidated financial
statements provides further information about the balances comprising past due
loans.
The following table presents a
summary of total criticized loans. Criticized loans with balances of $2 million
or more on nonaccrual status or whose terms have been modified in a TDR are
individually subjected to quarterly credit quality reviews, and the Corporation
may establish specific allowances for such loans. A table of loans by credit
quality indicator included in Note 4 to the consolidated financial
statements provides further information about the balances comprising total
criticized loans.
|
|
|
|
|
|
|
|
|
|
|
(dollar
amounts in millions) |
|
|
|
|
|
December
31 |
2014 |
|
|
2013 |
|
Total
criticized loans |
$ |
1,893 |
|
|
|
$ |
2,260 |
|
|
As
a percentage of total loans |
3.9 |
% |
|
|
5.0 |
% |
At December 31,
2014, foreclosed
property totaled $9
million and
consisted of 88 properties, compared to $9
million and 89
properties at December 31,
2013. The following
table presents a summary of changes in foreclosed property.
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
|
Years
Ended December 31 |
2014 |
|
|
2013 |
|
Balance
at beginning of period |
$ |
9 |
|
|
|
$ |
54 |
|
|
Acquired
in foreclosure |
16 |
|
|
|
14 |
|
|
Write-downs |
(1 |
) |
|
|
(10 |
) |
|
Foreclosed
property sold (a) |
(14 |
) |
|
|
(49 |
) |
|
Balance
at end of period |
$ |
10 |
|
|
|
$ |
9 |
|
|
(a)
Net gain on foreclosed property sold |
$ |
5 |
|
|
|
$ |
6 |
|
For further information regarding
the Corporation's nonperforming assets policies and impaired loans, refer to
Note 1 and Note 4 to the consolidated financial
statements.
Concentration
of Credit Risk
Concentrations of credit risk may
exist when a number of borrowers are engaged in similar activities, or
activities in the same geographic region, and have similar economic
characteristics that would cause them to be similarly impacted by changes in
economic or other conditions.
The Corporation has a concentration of credit risk with the automotive industry.
All other industry concentrations, as defined by management, individually
represented less than 10 percent of total loans at December 31,
2014.
The following table presents a
summary of loans outstanding to companies related to the automotive
industry.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
|
|
|
|
|
|
|
December
31 |
2014 |
|
2013 |
|
|
Loans
Outstanding |
|
Percent of
Total Loans |
|
Loans
Outstanding |
|
Percent of
Total Loans |
|
|
|
|
|
|
Production: |
|
|
|
|
|
|
|
|
Domestic |
$ |
883 |
|
|
|
|
$ |
916 |
|
|
|
|
Foreign |
353 |
|
|
|
|
313 |
|
|
|
|
Total
production |
1,236 |
|
|
2.5 |
% |
|
1,229 |
|
|
2.7 |
% |
|
Dealer: |
|
|
|
|
|
|
|
|
Floor
plan |
3,790 |
|
|
|
|
3,504 |
|
|
|
|
Other |
2,641 |
|
|
|
|
2,350 |
|
|
|
|
Total
dealer |
6,431 |
|
|
13.2 |
% |
|
5,854 |
|
|
12.9 |
% |
|
Total
automotive |
$ |
7,667 |
|
|
15.8 |
% |
|
$ |
7,083 |
|
|
15.6 |
% |
Substantially all dealer loans
are in the National Dealer Services business line. Loans in the National Dealer
Services business line primarily include floor plan financing and other loans to
automotive dealerships. Floor plan loans, included in “commercial loans” in the
consolidated balance sheets, totaled $3.8
billion at
December 31,
2014, an increase
of $286
million compared to
$3.5
billion at
December 31,
2013. At
December 31,
2014 other loans in
the National Dealer Services business line totaled $2.6
billion, including
$1.5
billion of
owner-occupied commercial real estate mortgage loans, compared to $2.4 billion,
including $1.4
billion of
owner-occupied commercial real estate mortgage loans, at December 31,
2013. Automotive
lending also includes loans to borrowers involved with automotive production,
primarily Tier 1 and Tier 2 suppliers. Loans to borrowers involved with
automotive production totaled approximately $1.2
billion at both
December 31, 2014
and 2013.
December 31,
2014, dealer loans,
as shown in the table above, totaled $6.4
billion, of which
approximately $4.1
billion, or
63
percent, were to
foreign franchises, and $1.7
billion, or
27
percent, were to
domestic franchises. Other dealer loans, totaling $646
million, or
10
percent, at
December 31,
2014, include
obligations where a primary franchise was indeterminable, such as loans to large
public dealership consolidators and rental car, leasing, heavy truck and
recreation vehicle companies.
Nonaccrual loans to automotive
borrowers totaled $4
million, or
1
percent of total
nonaccrual loans at December 31,
2014, compared to
$5
million, or
1
percent of total
nonaccrual loans at December 31,
2013. Total
automotive net loan charge-offs were $1
million in both
2014 and 2013.
For further information regarding
significant group concentrations of credit risk, refer to Note 5
to the consolidated financial statements.
Commercial and
Residential Real Estate Lending
The following table summarizes
the Corporation's commercial real estate loan portfolio by loan
category.
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
|
|
|
December
31 |
2014 |
|
2013 |
|
Real
estate construction loans: |
|
|
|
|
Commercial
Real Estate business line (a) |
$ |
1,606 |
|
|
$ |
1,447 |
|
|
Other
business lines (b) |
349 |
|
|
315 |
|
|
Total
real estate construction loans |
$ |
1,955 |
|
|
$ |
1,762 |
|
|
Commercial
mortgage loans: |
|
|
|
|
Commercial
Real Estate business line (a) |
$ |
1,790 |
|
|
$ |
1,678 |
|
|
Other
business lines (b) |
6,814 |
|
|
7,109 |
|
|
Total
commercial mortgage loans |
$ |
8,604 |
|
|
$ |
8,787 |
|
|
|
|
(a) |
Primarily
loans to real estate developers. |
|
|
|
(b) |
Primarily
loans secured by owner-occupied real
estate. |
The Corporation limits risk
inherent in its commercial real estate lending activities by limiting exposure
to those borrowers directly involved in the commercial real estate markets,
diversifying credit risk by geography and project type, and adhering to
conservative policies on loan-to-value ratios for such loans. Commercial real
estate loans, consisting of real estate construction and commercial mortgage
loans, totaled $10.6
billion at
December 31,
2014, of which
$3.4
billion, or
32
percent, were to
borrowers in the Commercial Real Estate business line, which includes loans to
real estate developers. The remaining $7.2
billion, or
68
percent,
of commercial real estate loans is to borrowers in other business lines and
consisted primarily of owner-occupied commercial mortgages which bear credit
characteristics similar to non-commercial real estate business loans.
The real estate construction loan
portfolio primarily contains loans made to long-time customers with satisfactory
completion experience. Real estate construction loans in the Commercial Real
Estate business line totaled $1.6
billion with
$1
million on
nonaccrual status at December 31,
2014, compared to
$1.4
billion with
$20
million on
nonaccrual status at December 31,
2013. Net real
estate construction loan recoveries in the Commercial Real Estate business line
were $4 million in both 2014 and 2013.
Loans in the commercial mortgage
portfolio generally mature within three to five years. Of the $1.8
billion of
commercial mortgage loans in the Commercial Real Estate business line,
$22
million were on
nonaccrual status at December 31,
2014, compared to
$1.7
billion with
$51
million on
nonaccrual status at December 31,
2013. Commercial
mortgage loan net recoveries in the Commercial Real Estate business line were $8
million in 2014,
compared to net charge-offs of $6 million in 2013. In other business lines,
$73
million and
$105
million of
commercial mortgage loans were on nonaccrual status at December 31,
2014 and
2013, respectively, and net
charge-offs were $2 million and $10 million in 2014 and 2013, respectively.
The following table summarizes
the Corporation's residential mortgage and home equity loan portfolios by
geographic market.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2014 |
|
December 31,
2013 |
|
(dollar
amounts in millions) |
Residential
Mortgage
Loans |
|
%
of
Total |
|
Home
Equity
Loans |
|
%
of
Total |
|
Residential
Mortgage
Loans |
|
%
of
Total |
|
Home
Equity
Loans |
|
%
of
Total |
|
Geographic
market: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michigan |
$ |
417 |
|
|
23 |
% |
|
$ |
795 |
|
|
48 |
% |
|
$ |
422 |
|
|
25 |
% |
|
$ |
808 |
|
|
53 |
% |
|
California |
831 |
|
|
46 |
|
|
564 |
|
|
34 |
|
|
705 |
|
|
41 |
|
|
436 |
|
|
29 |
|
|
Texas |
337 |
|
|
18 |
|
|
247 |
|
|
15 |
|
|
340 |
|
|
20 |
|
|
228 |
|
|
15 |
|
|
Other
Markets |
246 |
|
|
13 |
|
|
52 |
|
|
3 |
|
|
230 |
|
|
14 |
|
|
45 |
|
|
3 |
|
|
Total |
$ |
1,831 |
|
|
100 |
% |
|
$ |
1,658 |
|
|
100 |
% |
|
$ |
1,697 |
|
|
100 |
% |
|
$ |
1,517 |
|
|
100 |
% |
Residential real estate loans,
which consist of traditional residential mortgages and home equity loans and
lines of credit, totaled $3.5
billion at
December 31,
2014. Residential
mortgages totaled $1.8
billion at
December 31,
2014, and were
primarily larger, variable-rate mortgages originated and retained for certain
private banking relationship customers. Of the $1.8
billion of
residential mortgage loans outstanding, $36
million were on
nonaccrual status at December 31,
2014. The home
equity portfolio totaled $1.7
billion at
December 31,
2014, of which $1.5
billion was outstanding under primarily variable-rate, interest-only home equity
lines of credit, $120 million were in amortizing status and $76 million were
closed-end home equity loans. Of the $1.7
billion of home
equity loans outstanding, $30
million were on
nonaccrual status at December 31,
2014. A majority of
the home equity portfolio was secured by junior liens at December 31,
2014. The
residential real estate portfolio is principally located within the
Corporation's primary geographic markets. Substantially all residential real
estate loans past due 90 days or more are placed on nonaccrual status, and
substantially all junior lien home equity loans that are current or less than 90
days past due are placed on nonaccrual status if full collection of the senior
position is in doubt. At no later than 180 days past due, such loans are charged
off to current appraised values less costs to sell.
Energy
Lending
The Corporation has a portfolio
of energy-related loans that are included primarily in "commercial loans" in the
consolidated balance sheets. The Corporation has over 30 years of experience in
energy lending, with a focus on middle market companies. Loans in the Middle
Market - Energy business line (approximately 200 borrowers at December 31,
2014) were $3.6
billion, or approximately 7 percent of total loans, at December 31,
2014, compared to
$2.8 billion, or approximately 6 percent of total loans, at December 31,
2013. There were no
nonaccrual Middle Market - Energy loans at December 31,
2014 and no net
charge-offs in 2014,
compared to $1 million of nonaccrual loans at December 31,
2013 and net
charge-offs of $2 million in 2013.
Credit policy for energy loans
includes parameters for collateral, engineering review, advance rates on proven
reserves, well and field diversity, and environmental due diligence, among other
factors. The portfolio of energy-related loans is diverse in nature, with
outstanding balances by customer market segment distributed approximately as
follows at December 31,
2014: 71 percent
exploration and production (EP) (comprising approximately 59 percent oil, 26
percent mixed and 15 percent natural gas), 16 percent energy services and 13
percent midstream. EP generally includes such activities as searching for
potential oil and gas fields, drilling exploratory wells and operating active
wells. The midstream sector is generally involved in the transportation, storage
and marketing of crude and/or refined energy products. Energy services
companies provide services to the EP and midstream sectors. As of December 31,
2014, a majority of the Corporation’s EP customers had at least 50 percent of
their oil and/or gas production hedged up to the end of 2015. Approximately 95
percent of the amount of loans outstanding in the Middle Market - Energy
business line had varying levels and types of collateral at December 31, 2014,
including oil and gas reserves and pipelines, equipment, accounts receivable,
inventory and other assets, or some combination thereof. Commitments to EP
borrowers are
generally subject to borrowing
base re-determinations about every six months, based on updated prices which
consider the then-current energy prices and other factors. While no adverse
trends had been noted in the internal risk ratings of energy borrowers at
December 31, 2014 from the significant decline in oil and gas prices in the late
third and fourth quarters of 2014, energy borrowers could be adversely impacted
from this event. Upcoming re-determinations could result in some reductions to
the lines of credit available to those borrowers, and may result in some
internal risk rating downgrades.
Refer to the “Allowance for
Credit Losses” subheading earlier in this section for a discussion of changes in
the allowance for loan losses as a result of the above-described
events.
International
Exposure
International assets are subject
to general risks inherent in the conduct of business in foreign countries,
including economic uncertainties and each foreign government's regulations. Risk
management practices minimize the risk inherent in international lending
arrangements. These practices include structuring bilateral agreements or
participating in bank facilities, which secure repayment from sources external
to the borrower's country. Accordingly, such international outstandings are
excluded from the cross-border risk of that country.
Mexico, with cross-border
outstandings of $670
million
(0.97
percent of total
assets),
$645
million
(0.99
percent of total
assets) and $569 million (0.87 percent of total assets) at December 31,
2014, 2013
and 2012, respectively, was the only
country with outstandings between 0.75 and 1.00 percent of total assets at
year-end 2014,
2013 and 2012. There were no countries with
cross-border outstandings exceeding 1.00 percent of total assets at year-end
2014, 2013 and 2012.
The Corporation does not hold any
sovereign exposure to Europe. The Corporation's international strategy as it
pertains to Europe is to focus on European companies doing business in North
America, with an emphasis on the Corporation's primary geographic markets.
The following table summarizes
cross-border exposure to entities domiciled in Mexico and Europe at December 31,
2014 and
2013.
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
|
|
|
|
December
31 |
|
2014 |
|
2013 |
|
Mexico
exposure: |
|
|
|
|
|
Commercial
and industrial |
|
$ |
661 |
|
|
$ |
641 |
|
|
Banks
and other financial institutions |
|
9 |
|
|
4 |
|
|
Total
outstanding |
|
670 |
|
|
645 |
|
|
Unfunded
commitments and guarantees |
|
179 |
|
|
204 |
|
|
Total
Mexico exposure |
|
$ |
849 |
|
|
$ |
849 |
|
|
|
|
|
|
|
|
European
exposure: |
|
|
|
|
|
Commercial
and industrial |
|
$ |
211 |
|
|
$ |
195 |
|
|
Banks
and other financial institutions |
|
52 |
|
|
93 |
|
|
Total
outstanding |
|
263 |
|
|
288 |
|
|
Unfunded
commitments and guarantees |
|
382 |
|
|
341 |
|
|
Total
European exposure (a) |
|
$ |
645 |
|
|
$ |
629 |
|
|
|
|
(a) |
Primarily
United Kingdom and the Netherlands. |
MARKET AND
LIQUIDITY RISK
Market risk represents the risk
of loss due to adverse movements in market rates or prices, including interest
rates, foreign exchange rates, commodity prices and equity prices. Liquidity
risk represents the failure to meet financial obligations coming due resulting
from an inability to liquidate assets or obtain adequate funding, and the
inability to easily unwind or offset specific exposures without significant
changes in pricing, due to inadequate market depth or market
disruptions.
The Asset and Liability Policy
Committee (ALCO) of the Corporation establishes and monitors compliance with the
policies and risk limits pertaining to market and liquidity risk management
activities. ALCO meets regularly to discuss and review market and liquidity risk
management strategies, and consists of executive and senior management from
various areas of the Corporation, including treasury, finance, economics,
lending, deposit gathering and risk management. The Treasury Department
mitigates market and liquidity risk through the actions it takes to manage the
Corporation's market, liquidity and capital positions under the direction of
ALCO.
Market Risk Analytics, of the
Office of Enterprise Risk, supports ALCO in measuring, monitoring and managing
interest rate and liquidity risks and coordinating all other market risks. Key
activities encompass: (i) providing information and analysis of the
Corporation's balance sheet structure and measurement of interest rate,
liquidity and all other market risks; (ii) monitoring and reporting of the
Corporation's positions relative to established policy limits and guidelines;
(iii) developing and presenting
analysis and strategies to adjust
risk positions; (iv) reviewing and presenting policies and authorizations for
approval; (v) monitoring of industry trends and analytical tools to be used in
the management of interest rate, liquidity and all other market risks; and (vi)
developing and monitoring the interest rate risk economic capital
estimate.
Interest
Rate Risk
Net interest income is the
primary source of revenue for the Corporation. Interest rate risk arises in the
normal course of business due to differences in the repricing and cash flow
characteristics of assets and liability, primarily through the Corporation's
core business activities of extending loans and acquiring deposits. The
Corporation's balance sheet is predominantly characterized by floating-rate
loans funded by a combination of core deposits and wholesale borrowings.
Approximately 85 percent of the Corporation's loans were floating at
December 31,
2014, of which
approximately 75 percent were based on LIBOR and 25 percent were based on Prime.
This creates sensitivity to interest rate movements due to the imbalance between
the floating-rate loan portfolio and the more slowly repricing deposit products.
In addition, the growth and/or contraction in the Corporation's loans and
deposits may lead to changes in sensitivity to interest rate movements in the
absence of mitigating actions. Examples of such actions are purchasing
investment securities, primarily fixed-rate, which provide liquidity to the
balance sheet and act to mitigate the inherent interest sensitivity, and hedging
the sensitivity with interest rate swaps. The Corporation actively manages its
exposure to interest rate risk, with the principal objective of optimizing net
interest income and the economic value of equity while operating within
acceptable limits established for interest rate risk and maintaining adequate
levels of funding and liquidity.
Interest
Rate Sensitivity
Since no single measurement
system satisfies all management objectives, a combination of techniques is used
to manage interest rate risk. These techniques examine the impact of interest
rate risk on net interest income and the economic value of equity under a
variety of alternative scenarios, including changes in the level, slope and
shape of the yield curve, utilizing multiple simulation analyses. Simulation
analyses produce only estimates of net interest income, as the assumptions used
are inherently uncertain. Actual results may differ from simulated results due
to many factors, including, but not limited to, the timing, magnitude and
frequency of changes in interest rates, market conditions, regulatory impacts
and management strategies.
Sensitivity of
Net Interest Income to Changes in Interest Rates
The analysis of the impact of
changes in interest rates on net interest income under various interest rate
scenarios is management's principal risk management technique. Management models
a base case net interest income under an unchanged interest rate environment and
what is believed to be the most likely balance sheet structure. Existing
derivative instruments entered into for risk management purposes are included in
the analysis, but no additional hedging is currently forecasted. These
derivative instruments currently comprise interest rate swaps that convert
fixed-rate long term debt to variable rates. This base case net interest income
is then compared against interest rate scenarios in which rates rise or decline
in a linear, non-parallel fashion from the base case over 12 months. In the
scenarios presented, short-term interest rates increase 200 basis points,
resulting in an average increase in short-term interest rates of 100 basis
points over the period (+200 scenario). Due to the current low level of interest
rates, the analysis reflects a declining interest rate scenario of a 25 basis
point drop in short-term interest rates, to zero percent.
Each scenario includes
assumptions such as loan growth, investment security prepayment levels,
depositor behavior, yield curve changes, loan and deposit pricing, and overall
balance sheet mix and growth. In the +200 scenario, assumptions related to loan
growth and deposit run-off are based on historical experience, resulting in a
modest increase in loans and a modest decrease in deposits from the base case.
No changes are modeled to investment securities beyond the replacement of
prepayments, and expected funding maturities are included. As a result of the
modeled balance sheet movement, excess reserves diminish. In addition, the model
reflects deposit pricing based on historical price movements with short-term
interest rates and loan spread held at current levels. The analysis also does
not capture possible regulatory impacts, including impacts of the recently
finalized liquidity coverage ratio (LCR) requirements, which could impact
balance sheet structure, product offerings and pricing as well as how interest
rate risk is managed. How the Corporation chooses to make additional
investments in high-quality, liquid assets (HQLA) and fund such investments may
have an impact on sensitivity. Changes in economic activity may result in a
balance sheet structure that is different from the changes management included
in its simulation analysis and may translate into a materially different
interest rate environment than those presented. For example, deposit balances
have grown significantly over the past several years, creating uncertainty
regarding future deposit balance levels. In isolation, a decline in deposit
balances beyond historical experience would reduce the estimated increase in net
interest income in the +200 scenario.
The table below, as of
December 31,
2014 and
2013, displays the estimated impact
on net interest income during the next 12 months by relating the base case
scenario results to those from the rising and declining rate scenarios described
above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
Annual Change |
|
(in
millions) |
2014 |
|
2013 |
|
December
31 |
Amount |
|
% |
|
Amount |
|
% |
|
Change
in Interest Rates: |
|
|
|
|
|
|
|
|
+200
basis points |
$ |
224 |
|
|
13 |
% |
|
$ |
210 |
|
|
13 |
% |
|
-25
basis points (to zero percent) |
(32 |
) |
|
(2 |
) |
|
(30 |
) |
|
(2 |
) |
Sensitivity increased slightly
from December 31,
2013 to December 31,
2014, primarily due
to changes in the current balance sheet mix driving a revised forecast. The
risk to declining interest rates is limited as a result of the inability of the
current low level of rates to fall significantly.
The table below, as of
December 31,
2014, illustrates
the estimated sensitivity of the above results to a change in deposit balance
assumptions in the +200 scenario, with all other assumptions held constant. In
this analysis, average noninterest-bearing deposit run-off in the 12-month
period has been increased by $1 billion and $3 billion from the historical
run-off experience included in the standard +200 scenario presented above and
assumes the deposit run-off reduces excess reserves and increases purchased
funds. The analysis is provided as an indicator of the sensitivity of net
interest income to the modeled deposit run-off assumption. It is not meant to
reflect management's expectation or best estimate. Actual changes in deposit
balances may vary from those reflected.
|
|
|
|
|
|
|
|
|
|
+200
Basis Points |
|
(in
millions) |
Estimated
Annual Change |
|
December 31,
2014 |
Amount |
|
% |
|
Incremental
Average Decrease in Noninterest-bearing Deposit Balances: |
|
|
|
|
$1
billion |
$ |
213 |
|
|
13 |
% |
|
$3
billion |
191 |
|
|
11 |
|
Sensitivity
of Economic Value of Equity to Changes in Interest Rates
In addition to the simulation
analysis on net interest income, an economic value of equity analysis provides
an alternative view of the interest rate risk position. The economic value of
equity is the difference between the estimate of the economic value of the
Corporation's financial assets, liabilities and off-balance sheet instruments,
derived through discounting cash flows based on actual rates at the end of the
period and the estimated economic value after applying the estimated impact of
rate movements. The economic value of equity analysis is based on an immediate
parallel 200 basis point increase and 25 basis point decrease in interest
rates.
The table below, as of
December 31,
2014 and
2013, displays the estimated impact
on the economic value of equity from the interest rate scenario described above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
2013 |
|
(in
millions) |
Amount |
|
% |
|
Amount |
|
% |
|
Change
in Interest Rates: |
|
|
|
|
|
|
|
|
+200
basis points |
$ |
1,218 |
|
|
10 |
% |
|
$ |
670 |
|
|
6 |
% |
|
-25
basis points (to zero percent) |
(293 |
) |
|
(2 |
) |
|
(164 |
) |
|
(1 |
) |
The change in the sensitivity of
the economic value of equity to a 200 basis point parallel increase in rates
between December 31,
2013 and
December 31,
2014 was primarily
driven by growth in deposits without a stated maturity and by changes in market
interest rates at the middle to long end of the curve, which most significantly
impact the value of deposits without a stated maturity.
LOAN
MATURITIES AND INTEREST RATE SENSITIVITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
Loans
Maturing |
|
December
31, 2014 |
Within One
Year
(a) |
|
After One
But Within
Five
Years |
|
After
Five Years |
|
Total |
|
Commercial
loans |
$ |
13,301 |
|
|
$ |
16,990 |
|
|
$ |
1,229 |
|
|
$ |
31,520 |
|
|
Real
estate construction loans |
705 |
|
|
1,090 |
|
|
160 |
|
|
1,955 |
|
|
Commercial
mortgage loans |
1,617 |
|
|
4,788 |
|
|
2,199 |
|
|
8,604 |
|
|
International
loans |
733 |
|
|
732 |
|
|
31 |
|
|
1,496 |
|
|
Total |
$ |
16,356 |
|
|
$ |
23,600 |
|
|
$ |
3,619 |
|
|
$ |
43,575 |
|
|
Sensitivity
of loans to changes in interest rates: |
|
|
|
|
|
|
|
|
Predetermined
(fixed) interest rates |
$ |
1,118 |
|
|
$ |
3,072 |
|
|
$ |
891 |
|
|
$ |
5,081 |
|
|
Floating
interest rates |
15,238 |
|
|
20,528 |
|
|
2,728 |
|
|
38,494 |
|
|
Total |
$ |
16,356 |
|
|
$ |
23,600 |
|
|
$ |
3,619 |
|
|
$ |
43,575 |
|
|
|
|
(a) |
Includes
demand loans, loans having no stated repayment schedule or maturity and
overdrafts. |
The Corporation uses investment
securities and derivative instruments as asset and liability management tools
with the overall objective of managing the volatility of net interest income
from changes in interest rates. These tools assist management in achieving the
desired interest rate risk management objectives. Activity related to derivative
instruments mainly involves interest rate swaps effectively converting
fixed-rate medium- and long-term debt to floating rate.
Risk
Management Derivative Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions)
Risk
Management Notional Activity |
Interest
Rate
Contracts |
|
Foreign
Exchange
Contracts |
|
Totals |
|
Balance
at January 1, 2013 |
$ |
1,450 |
|
|
$ |
475 |
|
|
$ |
1,925 |
|
|
Additions |
— |
|
|
16,232 |
|
|
16,232 |
|
|
Maturities/amortizations |
— |
|
|
(16,454 |
) |
|
(16,454 |
) |
|
Balance
at December 31, 2013 |
$ |
1,450 |
|
|
$ |
253 |
|
|
$ |
1,703 |
|
|
Additions |
600 |
|
|
14,012 |
|
|
14,612 |
|
|
Maturities/amortizations |
(250 |
) |
|
(13,757 |
) |
|
(14,007 |
) |
|
Balance at December 31,
2014 |
$ |
1,800 |
|
|
$ |
508 |
|
|
$ |
2,308 |
|
The notional amount of risk
management interest rate swaps totaled $1.8
billion at
December 31,
2014, and
$1.5
billion at
December 31,
2013, all under fair
value hedging strategies. The fair value of risk management interest rate swaps
was a net unrealized gain of $175
million at
December 31,
2014, compared to a
net unrealized gain of $290 million at December 31,
2013. Risk
management interest rate swaps generated $72
million of net
interest income for each of the years ended December 31,
2014 and
2013.
In addition to interest rate
swaps, the Corporation employs various other types of derivative instruments as
offsetting positions to mitigate exposures to foreign currency risks associated
with specific assets and liabilities (e.g., customer loans or deposits
denominated in foreign currencies). Such instruments may include foreign
exchange forward contracts and foreign exchange swap agreements. The aggregate
notional amounts of these risk management derivative instruments at December 31,
2014 and
2013 were $508
million and $253
million, respectively.
Further information regarding
risk management derivative instruments is provided in Note 8 to the consolidated financial
statements.
Customer-Initiated
and Other Derivative Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions)
Customer-Initiated
and Other Notional Activity |
Interest
Rate
Contracts |
|
Energy
Derivative
Contracts |
|
Foreign
Exchange
Contracts |
|
Totals |
|
Balance
at January 1, 2013 |
$ |
12,042 |
|
|
$ |
5,561 |
|
|
$ |
2,253 |
|
|
$ |
19,856 |
|
|
Additions |
3,167 |
|
|
3,455 |
|
|
66,534 |
|
|
73,156 |
|
|
Maturities/amortizations |
(2,092 |
) |
|
(3,293 |
) |
|
(67,023 |
) |
|
(72,408 |
) |
|
Terminations |
(1,420 |
) |
|
(349 |
) |
|
— |
|
|
(1,769 |
) |
|
Balance
at December 31, 2013 |
$ |
11,697 |
|
|
$ |
5,374 |
|
|
$ |
1,764 |
|
|
$ |
18,835 |
|
|
Additions |
3,298 |
|
|
2,925 |
|
|
62,871 |
|
|
69,094 |
|
|
Maturities/amortizations |
(1,668 |
) |
|
(3,160 |
) |
|
(62,641 |
) |
|
(67,469 |
) |
|
Terminations |
(999 |
) |
|
(207 |
) |
|
— |
|
|
(1,206 |
) |
|
Balance at December 31,
2014 |
$ |
12,328 |
|
|
$ |
4,932 |
|
|
$ |
1,994 |
|
|
$ |
19,254 |
|
The Corporation writes and
purchases interest rate caps and floors and enters into foreign exchange
contracts, interest rate swaps and energy derivative contracts to accommodate
the needs of customers requesting such services. Changes in the fair value of
customer-initiated and other derivatives are recognized in earnings as they
occur. To limit the market risk of these activities, the Corporation generally
takes offsetting positions with dealers. The notional amounts of offsetting
positions are included in the table above. Customer-initiated and other notional
activity represented 89
percent and
92
percent of total
interest rate, energy and foreign exchange contracts at December 31,
2014 and
2013, respectively.
Further information regarding
customer-initiated and other derivative instruments is provided in Note
8
to the consolidated financial statements.
Liquidity
Risk and Off-Balance Sheet Arrangements
Liquidity is the ability to meet
financial obligations through the maturity or sale of existing assets or the
acquisition of additional funds. Various financial obligations, including
contractual obligations and commercial commitments, may require future cash
payments by the Corporation. The following contractual obligations table
summarizes the Corporation's noncancelable contractual obligations and future
required minimum payments. Refer to Notes 6, 9, 10, 11, 12, and 18 to the consolidated financial
statements for further information regarding these contractual obligations.
Contractual
Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
Minimum
Payments Due by Period |
|
December 31,
2014 |
Total |
|
Less
than
1
Year |
|
1-3
Years |
|
3-5
Years |
|
More than
5
Years |
|
Deposits
without a stated maturity (a) |
$ |
52,930 |
|
|
$ |
52,930 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Certificates of deposit and
other deposits with a stated maturity (a) |
4,556 |
|
|
3,447 |
|
|
899 |
|
|
156 |
|
|
54 |
|
|
Short-term
borrowings (a) |
116 |
|
|
116 |
|
|
— |
|
|
— |
|
|
— |
|
|
Medium-
and long-term debt (a) |
2,522 |
|
|
606 |
|
|
1,150 |
|
|
359 |
|
|
407 |
|
|
Operating
leases |
473 |
|
|
73 |
|
|
125 |
|
|
93 |
|
|
182 |
|
|
Commitments
to fund low income housing partnerships |
123 |
|
|
76 |
|
|
36 |
|
|
5 |
|
|
6 |
|
|
Other
long-term obligations (b) |
231 |
|
|
60 |
|
|
47 |
|
|
23 |
|
|
101 |
|
|
Total
contractual obligations |
$ |
60,951 |
|
|
$ |
57,308 |
|
|
$ |
2,257 |
|
|
$ |
636 |
|
|
$ |
750 |
|
|
Medium- and long-term debt (parent company only)
(a) (c) |
$ |
1,200 |
|
|
$ |
600 |
|
|
$ |
— |
|
|
$ |
350 |
|
|
$ |
250 |
|
|
|
|
(a) |
Deposits
and borrowings exclude accrued interest. |
|
|
|
(b) |
Includes
unrecognized tax benefits. |
|
|
|
(c) |
Parent
company only amounts are included in the medium- and long-term debt
minimum payments above. |
In addition to contractual
obligations, other commercial commitments of the Corporation impact liquidity.
These include commitments to fund indirect private equity and venture capital
investments, unused commitments to extend credit, standby letters of credit and
financial guarantees, and commercial letters of credit. The following table
summarizes the Corporation's commercial commitments and expected expiration
dates by period.
Commercial
Commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
Expected
Expiration Dates by Period |
|
December 31,
2014 |
Total |
|
Less than
1
Year |
|
1-3
Years |
|
3-5
Years |
|
More than
5
Years |
|
Commitments to fund
indirect private equity and venture capital investments |
$ |
5 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
5 |
|
|
Unused
commitments to extend credit |
30,056 |
|
|
9,287 |
|
|
10,406 |
|
|
8,157 |
|
|
2,206 |
|
|
Standby
letters of credit and financial guarantees |
3,881 |
|
|
2,757 |
|
|
717 |
|
|
368 |
|
|
39 |
|
|
Commercial
letters of credit |
75 |
|
|
75 |
|
|
— |
|
|
— |
|
|
— |
|
|
Total
commercial commitments |
$ |
34,017 |
|
|
$ |
12,119 |
|
|
$ |
11,123 |
|
|
$ |
8,525 |
|
|
$ |
2,250 |
|
Since many of these commitments
expire without being drawn upon, the total amount of these commercial
commitments does not necessarily represent the future cash requirements of the
Corporation. Refer to the “Other Market Risks” section below and Note
8
to the consolidated financial statements for a further discussion of these
commercial commitments.
Wholesale
Funding
The Corporation may access the
purchased funds market when necessary, which includes foreign office time
deposits and short-term borrowings. Capacity for incremental purchased funds at
December 31,
2014 included the
ability to purchase federal funds, sell securities under agreements to
repurchase, as well as issue deposits to institutional investors and issue
certificates of deposit through brokers. Purchased funds totaled $251
million at
December 31,
2014, compared to
$602
million at
December 31,
2013. At
December 31,
2014, the Bank had
pledged loans totaling $25
billion which
provided for up to $19
billion of available
collateralized borrowing with the FRB.
The Bank is a member of the
Federal Home Loan Bank of Dallas, Texas (FHLB), which provides short- and
long-term funding to its members through advances collateralized by real
estate-related assets. Actual borrowing capacity is contingent on the amount of
collateral available to be pledged to the FHLB. At December 31,
2014, $14
billion of real
estate-related loans were pledged to the FHLB as blanket collateral to provide
capacity for potential future borrowings of approximately $6 billion. As of
December 31,
2014, the
Corporation did not have any outstanding borrowings from the FHLB.
Additionally, the Bank had the
ability to issue up to $15.0 billion of debt at December 31,
2014 under an
existing $15 billion medium-term senior note program which allows the issuance
of debt with maturities between three months and 30 years. The Corporation also
maintains a shelf registration statement with the Securities and Exchange
Commission from which it may issue debt and/or equity securities.
The ability of the Corporation
and the Bank to raise funds at competitive rates is impacted by rating agencies'
views of the credit quality, liquidity, capital and earnings of the Corporation
and the Bank. As of December 31,
2014, the four major
rating agencies had assigned the following ratings to long-term senior unsecured
obligations of the Corporation and the Bank. A security rating is not a
recommendation to buy, sell, or hold securities and may be subject to revision
or withdrawal at any time by the assigning rating agency. Each rating should be
evaluated independently of any other rating.
|
|
|
|
|
|
|
|
|
|
|
Comerica Incorporated |
|
Comerica Bank |
|
December 31,
2014 |
Rating |
Outlook |
|
Rating |
Outlook |
|
Standard
and Poor’s |
A- |
Stable |
(a) |
|
A |
Stable |
(a) |
|
Moody’s
Investors Service |
A3 |
Stable |
|
|
A2 |
Stable |
|
|
Fitch
Ratings |
A |
Stable |
|
|
A |
Stable |
|
|
DBRS |
A |
Stable |
|
|
A
(High) |
Stable |
|
|
|
|
(a) |
On
January 29, 2015, Standard and Poor's updated its outlook to
"negative". |
The Corporation satisfies
liquidity requirements with either liquid assets or various funding sources.
Liquid assets, which totaled $13.3
billion at
December 31,
2014, compared to
$12.6
billion at
December 31,
2013, provide a
reservoir of liquidity. Liquid assets include cash and due from banks, federal
funds sold, interest-bearing deposits with banks, other short-term investments
and unencumbered investment securities.
In September 2014, U.S. banking
regulators issued a final rule implementing a quantitative liquidity requirement
in the U.S. generally consistent with the LCR minimum liquidity measure
established under the Basel III liquidity framework. Under the rule, the
Corporation is subject to a modified LCR standard, which requires a financial
institution to hold a minimum level of HQLA to fully cover modified net cash
outflows under a 30-day systematic liquidity stress scenario. The rule is
effective for the Corporation on January 1, 2016. During the transition year,
2016, the Corporation will be required to maintain a minimum LCR of 90 percent.
Beginning January 1, 2017, and thereafter, the minimum required LCR will be 100
percent. The Corporation continues to evaluate the impact of the rule; however,
we expect to meet the final requirements adopted by U.S. banking regulators
within the required timetable. To reach full compliance and provide a
buffer for normal volatility in balance sheet dynamics, the
Corporation expects to add
additional HQLA, which may be funded with additional debt, in the future. The
Corporation does not currently expect compliance with the LCR rule will have a
significant impact on net interest income.
The Basel III liquidity framework
includes a second minimum liquidity measure, the Net Stable Funding Ratio
(NSFR), which requires the amount of available longer-term, stable sources of
funding to be at least 100 percent of the required amount of longer-term stable
funding over a one-year period. The Basel Committee on Banking Supervision is in
the process of reviewing the proposed NSFR standard and evaluating its impact on
the banking system. U.S. banking regulators have announced that they expect to
issue proposed rulemaking to implement the NSFR in advance of its scheduled
global implementation in 2018. While uncertainty exists in the final form and
timing of the U.S. rule implementing the NSFR and whether or not the Corporation
will be subject to the full requirements, the Corporation is closely monitoring
the development of the rule.
The Corporation regularly
evaluates its ability to meet funding needs in unanticipated, stressed
environments. In conjunction with the quarterly 200 basis point interest rate
simulation analyses, discussed in the “Interest Rate Sensitivity” section of
this financial review, liquidity ratios and potential funding availability are
examined. Each quarter, the Corporation also evaluates its ability to meet
liquidity needs under a series of broad events, distinguished in terms of
duration and severity. The evaluation as of December 31,
2014 projected that
sufficient sources of liquidity were available under each series of
events.
Variable
Interest Entities
The Corporation holds interests
in certain unconsolidated variable interest entities (VIEs). These
unconsolidated VIEs are principally funds (limited partnerships or limited
liability companies) which invest in low income housing projects. The
Corporation is not deemed the primary beneficiary of these VIEs and,
accordingly, the Corporation does not consolidate these VIEs. Refer to the
“Principles of Consolidation” section in Note 1 to the consolidated financial
statements for a summary of the Corporation's consolidation policy as it relates
to VIEs. Also, refer to Note 9 to the consolidated financial
statements for a discussion of the Corporation's involvement in VIEs, including
those in which the Corporation holds a significant interest but for which it is
not the primary beneficiary.
Other
Market Risks
Market risk related to the
Corporation's trading instruments is not significant, as trading activities are
limited. Certain components of the Corporation's noninterest income, primarily
fiduciary income, are at risk to fluctuations in the market values of underlying
assets, particularly equity and debt securities. Other components of noninterest
income, primarily brokerage fees, are at risk to changes in the volume of market
activity.
OPERATIONAL
RISK
Operational risk represents the
risk of loss resulting from inadequate or failed internal processes, people and
systems, or from external events. The definition includes legal risk, which is
the risk of loss resulting from failure to comply with laws and regulations as
well as prudent ethical standards and contractual obligations. The definition
does not include strategic or reputational risks. Although operational losses
are experienced by all companies and are routinely incurred in business
operations, the Corporation recognizes the need to identify and control
operational losses and seeks to limit losses to a level deemed appropriate by
management, as outlined in the Corporation’s risk appetite statement. The
appropriate risk level is determined through consideration of the nature of the
Corporation's business and the environment in which it operates, in combination
with the impact from, and the possible impact on, other risks faced by the
Corporation. Operational risk is mitigated through a system of internal controls
that are designed to keep operating risks at appropriate levels. The Operational
Risk Management Committee monitors risk management techniques and systems. The
Corporation has developed a framework that includes a centralized operational
risk management function and business/support unit risk coordinators responsible
for managing operational risk specific to the respective business
lines.
COMPLIANCE
RISK
Compliance risk represents the
risk of regulatory sanctions or financial loss resulting from the Corporation's
failure to comply with regulations and standards of good banking practice. The
impact of such risks is highly interdependent with strategic risk, as the
reputational impact from compliance breaches can be severe. Activities which may
expose the Corporation to compliance risk include, but are not limited to, those
dealing with the prevention of money laundering, privacy and data protection,
community reinvestment initiatives, fair lending, consumer protection,
employment and tax matters, over-the-counter derivative activities and other
activities regulated by the Dodd-Frank Wall Street Reform and Consumer
Protection Act.
The Enterprise-Wide Compliance
Committee, comprising senior and executive business unit managers, as well as
managers responsible for compliance, audit and overall risk, oversees compliance
risk. This enterprise-wide approach provides a consistent view of compliance
across the organization. The Enterprise-Wide Compliance Committee also ensures
that appropriate actions are implemented in business units to mitigate risk to
an acceptable level.
STRATEGIC
RISK
Strategic risk represents the
risk of loss due to impairment of reputation, failure to fully develop and
execute business plans, failure to assess current and new opportunities in
business, markets and products, failure to determine appropriate consideration
for risks accepted, and any other event not identified in the defined risk
categories of credit, market, operational or compliance risks. Mitigation of the
various risk elements that represent strategic risk is achieved through various
metrics and initiatives to help the Corporation better understand, measure and
report on such risks.
CRITICAL
ACCOUNTING POLICIES
The Corporation’s consolidated
financial statements are prepared based on the application of accounting
policies, the most significant of which are described in Note 1. These policies require numerous
estimates and strategic or economic assumptions, which may prove inaccurate or
subject to variations. Changes in underlying factors, assumptions or estimates
could have a material impact on the Corporation’s future financial condition and
results of operations. At December 31,
2014, the most
critical of these significant accounting policies were the policies related to
the allowance for credit losses, valuation methodologies, goodwill, pension plan
accounting and income taxes. These policies were reviewed with the Audit
Committee of the Corporation’s Board of Directors and are discussed more fully
below.
ALLOWANCE FOR
CREDIT LOSSES
The allowance for credit losses,
which includes both the allowance for loan losses and the allowance for credit
losses on lending-related commitments, is calculated with the objective of
maintaining a reserve sufficient to absorb estimated probable losses.
Management's determination of the appropriateness of the allowance is based on
periodic evaluations of the loan portfolio, lending-related commitments, and
other relevant factors. This evaluation is inherently subjective as it requires
numerous estimates, including the loss content for internal risk ratings,
collateral values, the amounts and timing of expected future cash flows, and for
lending-related commitments, estimates of the probability of draw on unused
commitments.
In determining the allowance for
credit losses, the Corporation individually evaluates certain impaired loans,
applies standard reserve factors to pools of homogeneous loans and
lending-related commitments and incorporates qualitative adjustments. Standard
loss factors, applied to the majority of the Corporation's loan portfolio and
lending-related commitments, are based on estimates of probabilities of default
for individual risk ratings over the loss emergence period and loss given
default. Since standard loss factors are applied to large pools of loans, even
minor changes in these factors could significantly affect the Corporation's
determination of the appropriateness of the allowance for credit losses. To
illustrate, if recent loss experience dictated that the estimated standard loss
factors would be changed by five percent (of the estimate) across all loan risk
ratings, the allowance for loan losses as of December 31,
2014 would change by
approximately $24
million. Loss
emergence periods are used to determine the most appropriate default horizon
associated with the calculation of probabilities of default. Loss emergence
periods tend to lengthen during benign economic periods and shorten during
periods of economic distress. Considered in isolation, lengthening the loss
emergence period assumption would result in an increase to the allowance for
credit losses. Because standard loss factors are applied to pools of loans
based on the Corporation's internal risk rating system, loss estimates are
highly dependent on the accuracy of the risk rating assigned to each loan. The
inherent imprecision in the risk rating system resulting from inaccuracy in
assigning and/or entering risk ratings in the loan accounting system is
monitored by the Corporation's asset quality review function and incorporated in
a qualitative adjustment. The Corporation may also include qualitative
adjustments intended to capture the impact of certain other uncertainties that
exist but are not yet reflected in the standard reserve factors. These
qualitative adjustments are based on management’s analysis of factors such as
portfolios where recent historical losses exceed expected losses or known recent
events are expected to alter risk ratings once evidence is acquired, observable
macroeconomic metrics, including consideration of regional metrics within the
Corporation's footprint, and a qualitative assessment of the lending
environment, including underwriting standards, current economic and political
conditions, and other factors affecting credit quality. Deterioration in metrics
and credit trends included in this analysis would result in an increase to the
qualitative adjustment increasing the allowance for credit losses. For example,
if energy prices remain low for an extended period, risk ratings for Middle
Market-Energy customers could deteriorate beyond management's expectations,
which could result in an increase to the allowance for credit
losses.
For further discussion of the
methodology used in the determination of the allowance for credit losses, refer
to Note 1 to the consolidated financial statements. To the extent actual
outcomes differ from management estimates, additional provision for credit
losses may be required that would adversely impact earnings in future periods. A
substantial majority of the allowance is assigned to business segments. Any
earnings impact resulting from actual outcomes differing from management
estimates would primarily affect the Business Bank segment.
VALUATION
METHODOLOGIES
Fair Value
Measurement of Level 3 Financial Instruments
Fair value measurement applies
whenever accounting guidance requires or permits assets or liabilities to be
measured at fair value. Fair value is an estimate of the exchange price that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction (i.e., not a forced transaction, such as a liquidation or distressed
sale) between market participants at the measurement date and is based on the
assumptions market participants would use when pricing an asset or liability.
Fair value measurement and
disclosure guidance establishes a three-level hierarchy for disclosure of assets
and liabilities recorded at fair value. Notes 1 and 2 to the consolidated financial
statements includes information about the fair value hierarchy, the extent to
which fair value is used to measure assets and liabilities and the valuation
methodologies and key inputs used. At December 31, 2014, assets and liabilities
measured using observable inputs that are classified as Level 1 or Level 2
represented
98.5 percent and 99.9 percent of
total assets and liabilities recorded at fair value, respectively. Valuations
generated from model-based techniques that use at least one significant
assumption not observable in the market are considered Level 3. These
unobservable assumptions reflect estimates of assumptions market participants
would use in pricing the asset or liability. Valuation techniques include the
use of option pricing models, discounted cash flow models and similar
techniques. Fair value measurements for assets and liabilities where limited or
no observable market data exists are based primarily upon estimates which cannot
be determined with precision and in many cases may not reflect amounts exchanged
in a current sale of the financial instrument. Changes in market conditions may
reduce the availability of quoted prices or observable data. For example,
reduced liquidity in the capital markets or changes in secondary market
activities could result in observable market inputs becoming unavailable.
Therefore, when market data is not available, the Corporation would use
valuation techniques requiring more management judgment to estimate the
appropriate fair value.
At December 31,
2014, Level 3
financial assets recorded at fair value on a recurring basis totaled
$140
million, or less
than one percent of total assets. This included auction-rate securities with a
fair value of $136
million at
December 31,
2014. Changes in the
fair value are recorded in other comprehensive income (loss) and reviewed
quarterly for possible other-than-temporary impairment. The fair value at
December 31,
2014 was determined
using an income approach based on a discounted cash flow model utilizing two
significant assumptions in the model: discount rate (including a liquidity risk
premium) and workout period. The discount rate was calculated using credit
spreads of the underlying collateral or similar securities plus a liquidity risk
premium. The liquidity risk premium was derived from the rate at which various
types of auction-rate securities had been redeemed or sold. The workout period
was based on an assessment of publicly available information on efforts to
re-establish functioning markets for these securities and the Corporation's
redemption experience. Changes in these significant assumptions could result in
different valuations. For example, an increase or decrease in the liquidity
premium of 100 basis points could change the fair value by $2
million at
December 31,
2014.
At December 31,
2014, Level 3
financial assets recorded at fair value on a nonrecurring basis totaled
$68
million, or less
than one percent of total assets, and consisted primarily of impaired loans and
foreclosed property. At December 31,
2014, there were
no financial liabilities recorded
at fair value on a nonrecurring basis.
GOODWILL
Goodwill is initially recorded as
the excess of the purchase price over the fair value of net assets acquired in a
business combination and is subsequently evaluated at least annually for
impairment. Goodwill impairment testing is performed at the reporting unit
level, equivalent to a business segment or one level below. The Corporation has
three reporting units: the Business Bank, the Retail Bank and Wealth
Management. At December 31,
2014 and
2013, goodwill totaled $635
million, including
$380
million allocated to
the Business Bank, $194
million allocated to
the Retail Bank and $61
million allocated to
Wealth Management. The goodwill impairment test is a two-step test. The first
step of the goodwill impairment test compares the estimated fair value of
identified reporting units with their carrying amount, including goodwill. If
the estimated fair value of the reporting unit is less than the carrying value,
the second step must be performed to determine the implied fair value of the
reporting unit's goodwill and the amount of goodwill impairment, if any.
Reporting units are not legal
entities, Therefore, determining the carrying value of reporting units requires
the use of judgment. In performing the annual impairment test, the carrying
value of each reporting unit is the greater of economic or regulatory capital.
The Corporation assigns economic capital using internal management methodologies
on the basis of each reporting unit's credit, operational and interest rate
risks, as well as goodwill. To determine regulatory capital, each reporting unit
is assigned sufficient capital such that their respective Tier 1 ratio, based on
allocated risk-weighted assets, is the same as that of the Corporation. Using
this two-pronged approach, the Corporation's equity is fully allocated to its
reporting units except for capital held primarily for the risk associated with
the securities portfolio which is assigned to the Finance segment of the
Corporation.
Determining the fair value of
reporting units is a subjective process involving the use of estimates and
judgments related to the selection of inputs such as future cash flows, discount
rates, comparable public company multiples, applicable control premiums and
economic expectations used in determining the interest rate environment. The
estimated fair values of the reporting units are determined using a blend of two
commonly used valuation techniques: the market approach and the income approach.
For the market approach, valuations of reporting units consider a combination of
earnings, equity and other multiples from companies with characteristics similar
to the reporting unit. Since the fair values determined under the market
approach are representative of noncontrolling interests, the valuations
accordingly incorporate a control premium. For the income approach, estimated
future cash flows and terminal value are discounted. Estimated future cash flows
are derived from internal forecasts and economic expectations for each reporting
unit which incorporate uncertainty factors inherent to long-term projections.
The applicable discount rate is based on the imputed cost of equity capital
appropriate for each reporting unit, which incorporates the risk-free rate of
return, the level of non-diversified risk associated with companies with
characteristics similar to the reporting unit, a size risk premium and a market
equity risk premium.
The annual test of goodwill
impairment was performed as of the beginning of the third quarter 2014. The Corporation's assumptions
included maintaining the low Federal funds target rate through mid-2015 with
modest increases thereafter until eventually reaching a normal interest rate
environment. At the conclusion of the first step of the annual goodwill
impairment tests
performed in the third quarter
2014, the estimated fair values of
all reporting units substantially exceeded their carrying amounts, including
goodwill. The results of the annual test of the goodwill impairment test for
each reporting unit were subjected to stress testing as appropriate.
Economic conditions impact the
assumptions related to interest and growth rates, loss rates and imputed cost of
equity capital. The fair value estimates for each reporting unit incorporated
current economic and market conditions, including the recent Federal Reserve
announcements and the impact of legislative and regulatory changes, to the
extent known and as described above. However, further weakening in the economic
environment, such as adverse changes in interest rates, a decline in the
performance of the reporting units or other factors could cause the fair value
of one or more of the reporting units to fall below their carrying value,
resulting in a goodwill impairment charge. Additionally, new legislative or
regulatory changes not anticipated in management's expectations may cause the
fair value of one or more of the reporting units to fall below the carrying
value, resulting in a goodwill impairment charge. Any impairment charge would
not affect the Corporation's regulatory capital ratios, tangible common equity
ratio or liquidity position.
For further information about the
Corporation's goodwill accounting policy, refer to Note 1 to the consolidated
financial statements.
PENSION PLAN
ACCOUNTING
The Corporation has defined
benefit pension plans in effect for substantially all full-time employees hired
before
January 1, 2007.
Benefits under the plans are based on years of service, age and compensation.
Assumptions are made concerning future events that will determine the amount and
timing of required benefit payments, funding requirements and defined benefit
pension expense. The major assumptions are the discount rate used in determining
the current benefit obligation, the long-term rate of return expected on plan
assets, the rate of compensation increase and the estimated mortality rate. The
discount rate is determined by matching the expected cash flows of the pension
plans to a portfolio of high quality corporate bonds as of the measurement date,
December 31. The long-term rate of return expected on plan assets is set after
considering both long-term returns in the general market and long-term returns
experienced by the assets in the plan. The current target asset allocation model
for the plans is detailed in Note 17 to the consolidated financial
statements. The expected returns on these various asset categories are blended
to derive one long-term return assumption. The assets are invested in certain
collective investment and mutual funds, common stocks, U.S. Treasury and other
U.S. government agency securities, and corporate and municipal bonds and notes.
The rate of compensation increase is based on reviewing recent annual
pension-eligible compensation increases as well as the expectation of future
increases. Mortality rate assumptions are based on mortality tables published by
third-parties such as the Society of Actuaries (SOA), considering other
available information including historical data as well as studies and
publications from reputable sources. The Corporation reviews its pension plan
assumptions on an annual basis with its actuarial consultants to determine if
the assumptions are reasonable and adjusts the assumptions to reflect changes in
future expectations.
The assumptions used to calculate
2015 expense for the defined benefit
pension plans were a discount rate of 4.28
percent, a long-term
rate of return on plan assets of 6.75
percent and a rate
of compensation increase of 3.75
percent. The
Corporation adopted the RP-2014 mortality tables and the MP-2014 mortality
improvement scales issued by the SOA in October 2014, with certain
entity-specific adjustments. The new mortality assumptions increased the
projected benefit obligations for the qualified and non-qualified defined
benefit pension plans by approximately $119 million and $17 million,
respectively, at December 31,
2014 and increased
expected 2015 pension expense by approximately $25 million. Had the new
mortality tables been adopted as published, expected 2015 pension expense would
have increased by approximately $34 million. Defined benefit pension expense in
2015 is expected to increase
approximately 14 percent to about $45 million from the $39
million recorded in
2014, primarily driven by a decrease
in the discount rate and the impact of changes in mortality assumptions,
partially offset by the benefit from a $350 million cash contribution from the
Corporation in December 2014.
Changing the 2015 key actuarial assumptions
discussed above by 25 basis points would have the following impact on defined
benefit pension expense in 2015:
|
|
|
|
|
|
|
|
|
|
|
25
Basis Point |
|
(in
millions) |
Increase |
|
Decrease |
|
Key
Actuarial Assumption: |
|
|
|
|
Discount
rate |
$ |
(10.7 |
) |
|
$ |
10.7 |
|
|
Long-term
rate of return |
(5.9 |
) |
|
5.9 |
|
|
Rate
of compensation increase |
3.0 |
|
|
(3.0 |
) |
Due to the long-term nature of
pension plan assumptions, actual results may differ significantly from the
actuarial-based estimates. Differences resulting in actuarial gains or losses
are required to be recorded in shareholders' equity as part of accumulated other
comprehensive loss and amortized to defined benefit pension expense in future
years. In 2014, the actual return on plan
assets in the qualified defined benefit pension plan was $278
million, compared to
an expected return on plan assets of $131
million. In
2013, the actual return on plan
assets was $136 million, compared to an expected return on plan assets of $132
million. Total pretax losses recognized in accumulated other comprehensive loss
at December 31, 2014 were $593
million for the
qualified
defined benefit pension plan and
$79
million for the
non-qualified defined benefit pension plan. Actuarial pretax net losses
recognized in other comprehensive income (loss) for the year ended December 31,
2014 were
$196
million for the
qualified defined benefit pension plan and $38
million for the
non-qualified defined benefit pension plan. For further information, refer to
Note 1 to the consolidated financial statements.
Defined benefit pension expense
is recorded in “employee benefits” expense on the consolidated statements of
income and is allocated to business segments based on the segment's share of
salaries expense. Accordingly, defined benefit pension expense was allocated
approximately 43 percent, 28 percent, 24 percent and 5 percent to the Retail
Bank, Business Bank, Wealth Management and Finance segments, respectively, in
2014.
INCOME
TAXES
The calculation of the
Corporation's income tax provision and tax-related accruals is complex and
requires the use of estimates and judgments. The provision for income taxes is
the sum of income taxes due for the current year and deferred taxes. Deferred
taxes arise from temporary differences between the income tax basis and
financial accounting basis of assets and liabilities. Accrued taxes represent
the net estimated amount due to or to be received from taxing jurisdictions,
currently or in the future, and are included in “accrued income and other
assets” or “accrued expenses and other liabilities” on the consolidated balance
sheets. The Corporation assesses the relative risks and merits of tax positions
for various transactions after considering statutes, regulations, judicial
precedent and other available information and maintains tax accruals consistent
with these assessments. The Corporation is subject to audit by taxing
authorities that could question and/or challenge the tax positions taken by the
Corporation.
Included in net deferred taxes
are deferred tax assets. Deferred tax assets are evaluated for realization
based on available evidence of loss carryback capacity, projected future
reversals of existing taxable temporary differences and assumptions made
regarding future events. A valuation allowance is provided when it is
more-likely-than-not that some portion of the deferred tax asset will not be
realized.
Changes in the estimate of
accrued taxes occur due to changes in tax law, interpretations of existing tax
laws, new judicial or regulatory guidance, and the status of examinations
conducted by taxing authorities that impact the relative risks and merits of tax
positions taken by the Corporation. These changes, when they occur, impact the
estimate of accrued taxes and could be significant to the operating results of
the Corporation. For further information on tax accruals and related risks, see
Note 18 to the consolidated financial
statements.
SUPPLEMENTAL
FINANCIAL DATA
The following table provides a
reconciliation of non-GAAP financial measures used in this financial review with
financial measures defined by GAAP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollar
amounts in millions) |
|
|
|
|
|
|
|
|
|
|
December
31 |
2014 |
|
2013 |
|
2012 |
|
2011 |
|
2010 |
|
Tier
1 Common Capital Ratio: |
|
|
|
|
|
|
|
|
|
|
Tier
1 capital (a) |
$ |
7,169 |
|
|
$ |
6,895 |
|
|
$ |
6,705 |
|
|
$ |
6,582 |
|
|
$ |
6,027 |
|
|
Less: |
|
|
|
|
|
|
|
|
|
|
Trust
preferred securities |
— |
|
|
— |
|
|
— |
|
|
25 |
|
|
— |
|
|
Tier
1 common capital |
$ |
7,169 |
|
|
$ |
6,895 |
|
|
$ |
6,705 |
|
|
$ |
6,557 |
|
|
$ |
6,027 |
|
|
Risk-weighted
assets (a) |
$ |
68,273 |
|
|
$ |
64,825 |
|
|
$ |
66,115 |
|
|
$ |
63,244 |
|
|
$ |
59,506 |
|
|
Tier
1 risk-based capital ratio |
10.50 |
% |
|
10.64 |
% |
|
10.14 |
% |
|
10.41 |
% |
|
10.13 |
% |
|
Tier
1 common capital ratio |
10.50 |
|
|
10.64 |
|
|
10.14 |
|
|
10.37 |
|
|
10.13 |
|
|
Basel
III Common Equity Tier 1 Capital Ratio (estimated): |
|
|
|
|
|
|
|
|
|
|
Tier
1 common capital |
$ |
7,169 |
|
|
|
|
|
|
|
|
|
|
Basel
III adjustments (b) |
— |
|
|
|
|
|
|
|
|
|
|
Basel
III common equity Tier 1 capital (b) |
$ |
7,169 |
|
|
|
|
|
|
|
|
|
|
Risk-weighted
assets (a) |
$ |
68,273 |
|
|
|
|
|
|
|
|
|
|
Basel
III adjustments (b) |
1,536 |
|
|
|
|
|
|
|
|
|
|
Basel
III risk-weighted assets (b) |
$ |
69,809 |
|
|
|
|
|
|
|
|
|
|
Tier
1 common capital ratio |
10.5 |
% |
|
|
|
|
|
|
|
|
|
Basel
III common equity Tier 1 capital ratio (estimated) |
10.3 |
|
|
|
|
|
|
|
|
|
|
Tangible
Common Equity Ratio: |
|
|
|
|
|
|
|
|
|
|
Total
shareholder's equity |
$ |
7,402 |
|
|
$ |
7,150 |
|
|
$ |
6,939 |
|
|
$ |
6,865 |
|
|
$ |
5,790 |
|
|
Less: |
|
|
|
|
|
|
|
|
|
|
Goodwill |
635 |
|
|
635 |
|
|
635 |
|
|
635 |
|
|
150 |
|
|
Other
intangible assets |
15 |
|
|
17 |
|
|
22 |
|
|
32 |
|
|
6 |
|
|
Tangible
common equity |
$ |
6,752 |
|
|
$ |
6,498 |
|
|
$ |
6,282 |
|
|
$ |
6,198 |
|
|
$ |
5,634 |
|
|
Total
assets |
$ |
69,190 |
|
|
$ |
65,224 |
|
|
$ |
65,066 |
|
|
$ |
61,005 |
|
|
$ |
53,664 |
|
|
Less: |
|
|
|
|
|
|
|
|
|
|
Goodwill |
635 |
|
|
635 |
|
|
635 |
|
|
635 |
|
|
150 |
|
|
Other
intangible assets |
15 |
|
|
17 |
|
|
22 |
|
|
32 |
|
|
6 |
|
|
Tangible
assets |
$ |
68,540 |
|
|
$ |
64,572 |
|
|
$ |
64,409 |
|
|
$ |
60,338 |
|
|
$ |
53,508 |
|
|
Common
equity ratio |
10.85 |
% |
|
10.97 |
% |
|
10.67 |
% |
|
11.26 |
% |
|
10.80 |
% |
|
Tangible
common equity ratio |
9.85 |
|
|
10.07 |
|
|
9.76 |
|
|
10.27 |
|
|
10.54 |
|
|
Tangible
Common Equity per Share of Common Stock: |
|
|
|
|
|
|
|
|
|
|
Common
shareholders' equity |
$ |
7,402 |
|
|
$ |
7,150 |
|
|
$ |
6,939 |
|
|
$ |
6,865 |
|
|
$ |
5,790 |
|
|
Tangible
common equity |
6,752 |
|
|
6,498 |
|
|
6,282 |
|
|
6,198 |
|
|
5,634 |
|
|
Shares
of common stock outstanding (in millions) |
179 |
|
|
182 |
|
|
188 |
|
|
197 |
|
|
177 |
|
|
Common
shareholders' equity per share of common stock |
$ |
41.35 |
|
|
$ |
39.22 |
|
|
$ |
36.86 |
|
|
$ |
34.79 |
|
|
$ |
32.80 |
|
|
Tangible
common equity per share of common stock |
37.72 |
|
|
35.64 |
|
|
33.36 |
|
|
31.40 |
|
|
31.92 |
|
|
|
|
(a) |
Tier 1
capital and risk-weighted assets as defined by
regulation. |
|
|
|
(b) |
Estimated
ratios based on the standardized approach in the final rule for the U.S.
adoption of the Basel III regulatory capital framework, excluding most
elements of AOCI, as fully phased in. |
The Tier 1 common capital ratio
removes preferred stock and qualifying trust preferred securities from Tier 1
capital as defined by and calculated in conformity with bank regulations. The
Basel III common equity Tier 1 capital ratio further adjusts Tier 1 common
capital and risk-weighted assets to account for the final rule approved by U.S.
banking regulators in July 2013 for the U.S. adoption of the Basel III
regulatory capital framework. The final Basel III capital rules are effective
January 1, 2015 for banking organizations subject to the standardized approach.
The tangible common equity ratio removes preferred stock and the effect of
intangible assets from capital and the effect of intangible assets from total
assets and tangible common equity per share of common stock removes the effect
of intangible assets from common shareholders' equity per share of common stock.
The Corporation believes these measurements are meaningful measures of capital
adequacy used by investors, regulators, management and others to evaluate the
adequacy of common equity and to compare against other companies in the
industry.
FORWARD-LOOKING
STATEMENTS
This report includes
forward-looking statements as defined in the Private Securities Litigation
Reform Act of 1995. In addition, the Corporation may make other written and oral
communications from time to time that contain such statements. All statements
regarding the Corporation's expected financial position, strategies and growth
prospects and general economic conditions expected to exist in the future are
forward-looking statements. The words, “anticipates,” “believes,” “feels,”
“expects,” “estimates,” “seeks,” “strives,” “plans,” “intends,” “outlook,”
“forecast,” “position,” “target,” “mission,” “assume,” “achievable,”
“potential,” “strategy,” “goal,” “aspiration,” “opportunity,” “initiative,”
“outcome,” “continue,” “remain,” “maintain,” "on course," “trend,” “objective,”
“looks forward,” "projects," "models" and variations of such words and similar
expressions, or future or conditional verbs such as “will,” “would,” “should,”
“could,” “might,” “can,” “may” or similar expressions, as they relate to the
Corporation or its management, are intended to identify forward-looking
statements. The Corporation cautions that forward-looking statements are subject
to numerous assumptions, risks and uncertainties, which change over time.
Forward-looking statements speak only as of the date the statement is made, and
the Corporation does not undertake to update forward-looking statements to
reflect facts, circumstances, assumptions or events that occur after the date
the forward-looking statements are made. Actual results could differ materially
from those anticipated in forward-looking statements and future results could
differ materially from historical performance.
In addition to factors mentioned
elsewhere in this report or previously disclosed in the Corporation's SEC
reports (accessible on the SEC's website at www.sec.gov or on the Corporation's
website at www.comerica.com), actual results could differ materially from
forward-looking statements and future results could differ materially from
historical performance due to a variety of reasons, including but not limited
to, the following factors:
|
|
|
• |
general political, economic
or industry conditions, either domestically or internationally, may be
less favorable than expected; |
|
|
|
• |
governmental monetary and
fiscal policies may adversely affect the financial services industry, and
therefore impact the Corporation's financial condition and results of
operations; |
|
|
|
• |
changes in regulation or
oversight may have a material adverse impact on the Corporation's
operations; |
|
|
|
• |
the Corporation must
maintain adequate sources of funding and liquidity to meet regulatory
expectations, support its operations and fund outstanding
liabilities; |
|
|
|
• |
compliance with more
stringent capital and liquidity requirements may adversely affect the
Corporation; |
|
|
|
• |
declines in the businesses
or industries of the Corporation's customers, including the energy
industry, could cause increased credit losses or decreased loan balances,
which could adversely affect the
Corporation; |
|
|
|
• |
operational difficulties,
failure of technology infrastructure or information security incidents
could adversely affect the Corporation's business and
operations; |
|
|
|
• |
the Corporation relies on
other companies to provide certain key components of its business
infrastructure, and certain failures could materially adversely affect
operations; |
|
|
|
• |
noninterest expenses are
important to the Corporation's profitability, but are subject to a number
of factors, some of which are not in the Corporation's
control; |
|
|
|
• |
changes in the financial
markets, including fluctuations in interest rates and their impact on
deposit pricing, could adversely affect the Corporation's net interest
income and balance sheet; |
|
|
|
• |
any reduction in the
Corporation's credit rating could adversely affect the Corporation and/or
the holders of its securities; |
|
|
|
• |
unfavorable developments
concerning credit quality could adversely impact the Corporation's
financial results; |
|
|
|
• |
the soundness of other
financial institutions could adversely affect the
Corporation; |
|
|
|
• |
the introduction,
implementation, withdrawal, success and timing of business initiatives and
strategies may be less successful or may be different than anticipated,
which could adversely affect the Corporation's business;the Corporation
may not be able to utilize technology to efficiently and effectively
develop, market and deliver new products and services to its
customers; |
|
|
|
• |
competitive product and
pricing pressures among financial institutions within the Corporation's
markets may change; |
|
|
|
• |
changes in customer
behavior may adversely impact the Corporation's business, financial
condition and results of operations; |
|
|
|
• |
any future strategic
acquisitions or divestitures may present certain risks to the
Corporation's business and operations; |
|
|
|
• |
management's ability to
maintain and expand customer relationships may differ from
expectations; |
|
|
|
• |
management's ability to
retain key officers and employees may
change; |
|
|
|
• |
legal and regulatory
proceedings and related matters with respect to the financial services
industry, including those directly involving the Corporation and its
subsidiaries, could adversely affect the Corporation or the financial
services industry in general; |
|
|
|
• |
methods of reducing risk
exposures might not be effective; |
|
|
|
• |
terrorist activities or
other hostilities may adversely affect the general economy, financial and
capital markets, specific industries, and the Corporation;
|
|
|
|
• |
catastrophic events,
including, but not limited to, hurricanes, tornadoes, earthquakes, fires,
droughts and floods, may adversely affect the general economy, financial
and capital markets, specific industries, and the
Corporation; |
|
|
|
• |
changes in accounting
standards could materially impact the Corporation's financial statements;
and |
|
|
|
• |
the Corporation's
accounting policies and processes are critical to the reporting of
financial condition and results of operations. They require management to
make estimates about matters that are
uncertain. |
CONSOLIDATED
BALANCE SHEETS
Comerica
Incorporated and Subsidiaries
|
|
|
|
|
|
|
|
|
|
(in
millions, except share data) |
|
|
|
|
December
31 |
2014 |
|
2013 |
|
|
|
|
|
|
ASSETS |
|
|
|
|
Cash
and due from banks |
$ |
1,026 |
|
|
$ |
1,140 |
|
|
|
|
|
|
|
Interest-bearing
deposits with banks |
5,045 |
|
|
5,311 |
|
|
Other
short-term investments |
99 |
|
|
112 |
|
|
|
|
|
|
|
Investment
securities available-for-sale |
8,116 |
|
|
9,307 |
|
|
Investment
securities held-to-maturity |
1,935 |
|
|
— |
|
|
|
|
|
|
|
Commercial
loans |
31,520 |
|
|
28,815 |
|
|
Real
estate construction loans |
1,955 |
|
|
1,762 |
|
|
Commercial
mortgage loans |
8,604 |
|
|
8,787 |
|
|
Lease
financing |
805 |
|
|
845 |
|
|
International
loans |
1,496 |
|
|
1,327 |
|
|
Residential
mortgage loans |
1,831 |
|
|
1,697 |
|
|
Consumer
loans |
2,382 |
|
|
2,237 |
|
|
Total
loans |
48,593 |
|
|
45,470 |
|
|
Less
allowance for loan losses |
(594 |
) |
|
(598 |
) |
|
Net
loans |
47,999 |
|
|
44,872 |
|
|
Premises
and equipment |
532 |
|
|
594 |
|
|
Accrued
income and other assets |
4,438 |
|
|
3,888 |
|
|
Total
assets |
$ |
69,190 |
|
|
$ |
65,224 |
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY |
|
|
|
|
Noninterest-bearing
deposits |
$ |
27,224 |
|
|
$ |
23,875 |
|
|
|
|
|
|
|
Money
market and interest-bearing checking deposits |
23,954 |
|
|
22,332 |
|
|
Savings
deposits |
1,752 |
|
|
1,673 |
|
|
Customer
certificates of deposit |
4,421 |
|
|
5,063 |
|
|
Foreign
office time deposits |
135 |
|
|
349 |
|
|
Total
interest-bearing deposits |
30,262 |
|
|
29,417 |
|
|
Total
deposits |
57,486 |
|
|
53,292 |
|
|
Short-term
borrowings |
116 |
|
|
253 |
|
|
Accrued
expenses and other liabilities |
1,507 |
|
|
986 |
|
|
Medium-
and long-term debt |
2,679 |
|
|
3,543 |
|
|
Total
liabilities |
61,788 |
|
|
58,074 |
|
|
|
|
|
|
|
Common
stock - $5 par value: |
|
|
|
|
Authorized
- 325,000,000 shares |
|
|
|
|
Issued - 228,164,824
shares |
1,141 |
|
|
1,141 |
|
|
Capital
surplus |
2,188 |
|
|
2,179 |
|
|
Accumulated
other comprehensive loss |
(412 |
) |
|
(391 |
) |
|
Retained
earnings |
6,744 |
|
|
6,318 |
|
|
Less cost of common stock in
treasury - 49,146,225 shares at 12/31/14 and 45,860,786 shares at
12/31/13 |
(2,259 |
) |
|
(2,097 |
) |
|
Total
shareholders’ equity |
7,402 |
|
|
7,150 |
|
|
Total
liabilities and shareholders’ equity |
$ |
69,190 |
|
|
$ |
65,224 |
|
See notes to
consolidated financial statements.
CONSOLIDATED
STATEMENTS OF INCOME
Comerica
Incorporated and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
|
|
|
|
|
Years
Ended December 31 |
2014 |
|
2013 |
|
2012 |
|
INTEREST
INCOME |
|
|
|
|
|
|
Interest
and fees on loans |
$ |
1,525 |
|
|
$ |
1,556 |
|
|
$ |
1,617 |
|
|
Interest
on investment securities |
211 |
|
|
214 |
|
|
234 |
|
|
Interest
on short-term investments |
14 |
|
|
14 |
|
|
12 |
|
|
Total
interest income |
1,750 |
|
|
1,784 |
|
|
1,863 |
|
|
INTEREST
EXPENSE |
|
|
|
|
|
|
Interest
on deposits |
45 |
|
|
55 |
|
|
70 |
|
|
Interest
on medium- and long-term debt |
50 |
|
|
57 |
|
|
65 |
|
|
Total
interest expense |
95 |
|
|
112 |
|
|
135 |
|
|
Net
interest income |
1,655 |
|
|
1,672 |
|
|
1,728 |
|
|
Provision
for credit losses |
27 |
|
|
46 |
|
|
79 |
|
|
Net
interest income after provision for credit losses |
1,628 |
|
|
1,626 |
|
|
1,649 |
|
|
NONINTEREST
INCOME |
|
|
|
|
|
|
Service
charges on deposit accounts |
215 |
|
|
214 |
|
|
214 |
|
|
Fiduciary
income |
180 |
|
|
171 |
|
|
158 |
|
|
Commercial
lending fees |
98 |
|
|
99 |
|
|
96 |
|
|
Card
fees |
80 |
|
|
74 |
|
|
65 |
|
|
Letter
of credit fees |
57 |
|
|
64 |
|
|
71 |
|
|
Bank-owned
life insurance |
39 |
|
|
40 |
|
|
39 |
|
|
Foreign
exchange income |
40 |
|
|
36 |
|
|
38 |
|
|
Brokerage
fees |
17 |
|
|
17 |
|
|
19 |
|
|
Net
securities (losses) gains |
— |
|
|
(1 |
) |
|
12 |
|
|
Other
noninterest income |
142 |
|
|
168 |
|
|
158 |
|
|
Total
noninterest income |
868 |
|
|
882 |
|
|
870 |
|
|
NONINTEREST
EXPENSES |
|
|
|
|
|
|
Salaries
and benefits expense |
980 |
|
|
1,009 |
|
|
1,018 |
|
|
Net
occupancy expense |
171 |
|
|
160 |
|
|
163 |
|
|
Equipment
expense |
57 |
|
|
60 |
|
|
65 |
|
|
Outside
processing fee expense |
122 |
|
|
119 |
|
|
107 |
|
|
Software
expense |
95 |
|
|
90 |
|
|
90 |
|
|
Litigation-related
expense |
4 |
|
|
52 |
|
|
23 |
|
|
FDIC
insurance expense |
33 |
|
|
33 |
|
|
38 |
|
|
Advertising
expense |
23 |
|
|
21 |
|
|
27 |
|
|
Gain
on debt redemption |
(32 |
) |
|
(1 |
) |
|
— |
|
|
Merger
and restructuring charges |
— |
|
|
— |
|
|
35 |
|
|
Other
noninterest expenses |
173 |
|
|
179 |
|
|
191 |
|
|
Total
noninterest expenses |
1,626 |
|
|
1,722 |
|
|
1,757 |
|
|
Income
before income taxes |
870 |
|
|
786 |
|
|
762 |
|
|
Provision
for income taxes |
277 |
|
|
245 |
|
|
241 |
|
|
NET
INCOME |
593 |
|
|
541 |
|
|
521 |
|
|
Less
income allocated to participating securities |
7 |
|
|
8 |
|
|
6 |
|
|
Net
income attributable to common shares |
$ |
586 |
|
|
$ |
533 |
|
|
$ |
515 |
|
|
Earnings
per common share: |
|
|
|
|
|
|
Basic |
$ |
3.28 |
|
|
$ |
2.92 |
|
|
2.68 |
|
|
Diluted |
3.16 |
|
|
2.85 |
|
|
2.67 |
|
|
|
|
|
|
|
|
|
Cash
dividends declared on common stock |
143 |
|
|
126 |
|
|
106 |
|
|
Cash
dividends declared per common share |
0.79 |
|
|
0.68 |
|
|
0.55 |
|
See notes to
consolidated financial statements.
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME
Comerica
Incorporated and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
|
|
|
|
|
Years
Ended December 31 |
2014 |
|
2013 |
|
2012 |
|
|
|
|
|
|
|
|
NET
INCOME |
$ |
593 |
|
|
$ |
541 |
|
|
$ |
521 |
|
|
|
|
|
|
|
|
|
OTHER
COMPREHENSIVE INCOME (LOSS) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
(losses) gains on investment securities
available-for-sale: |
|
|
|
|
|
|
Net
unrealized holding gains (losses) arising during the
period |
166 |
|
|
(343 |
) |
|
48 |
|
|
Less: Reclassification
adjustment for net securities gains included in net income |
1 |
|
|
1 |
|
|
14 |
|
|
Change
in net unrealized gains (losses) before income taxes |
165 |
|
|
(344 |
) |
|
34 |
|
|
|
|
|
|
|
|
|
Defined
benefit pension and other postretirement plans adjustment: |
|
|
|
|
|
|
Actuarial
(loss) gain arising during the period |
(240 |
) |
|
286 |
|
|
(192 |
) |
|
Adjustments for amounts
recognized as components of net periodic benefit cost: |
|
|
|
|
|
|
Amortization
of actuarial net loss |
39 |
|
|
89 |
|
|
62 |
|
|
Amortization
of prior service cost |
3 |
|
|
2 |
|
|
3 |
|
|
Amortization
of transition obligation |
— |
|
|
— |
|
|
4 |
|
|
Change in defined benefit
pension and other postretirement plans adjustment before income
taxes |
(198 |
) |
|
377 |
|
|
(123 |
) |
|
|
|
|
|
|
|
|
Total
other comprehensive (loss) income before income taxes |
(33 |
) |
|
33 |
|
|
(89 |
) |
|
(Benefit)
provision for income taxes |
(12 |
) |
|
11 |
|
|
(32 |
) |
|
Total
other comprehensive (loss) income, net of tax |
(21 |
) |
|
22 |
|
|
(57 |
) |
|
|
|
|
|
|
|
|
COMPREHENSIVE
INCOME |
$ |
572 |
|
|
$ |
563 |
|
|
$ |
464 |
|
See notes to
consolidated financial statements.
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Comerica
Incorporated and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock |
|
|
|
Accumulated
Other
Comprehensive
Loss |
|
|
|
|
|
Total
Shareholders’
Equity |
|
(in
millions, except per share data) |
Shares
Outstanding |
|
Amount |
|
Capital
Surplus |
|
|
Retained
Earnings |
|
Treasury
Stock |
|
|
BALANCE
AT DECEMBER 31, 2011 |
197.3 |
|
|
$ |
1,141 |
|
|
$ |
2,170 |
|
|
$ |
(356 |
) |
|
$ |
5,543 |
|
|
$ |
(1,633 |
) |
|
$ |
6,865 |
|
|
Net income |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
521 |
|
|
— |
|
|
521 |
|
|
Other comprehensive loss,
net of tax |
— |
|
|
— |
|
|
— |
|
|
(57 |
) |
|
— |
|
|
— |
|
|
(57 |
) |
|
Cash dividends declared on
common stock ($0.55 per share) |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(106 |
) |
|
— |
|
|
(106 |
) |
|
Purchase of common
stock |
(10.2 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(308 |
) |
|
(308 |
) |
|
Net issuance of common stock
under employee stock plans |
1.2 |
|
|
— |
|
|
(46 |
) |
|
— |
|
|
(30 |
) |
|
63 |
|
|
(13 |
) |
|
Share-based
compensation |
— |
|
|
— |
|
|
37 |
|
|
— |
|
|
— |
|
|
— |
|
|
37 |
|
|
Other |
— |
|
|
— |
|
|
1 |
|
|
— |
|
|
— |
|
|
(1 |
) |
|
— |
|
|
BALANCE
AT DECEMBER 31, 2012 |
188.3 |
|
|
1,141 |
|
|
2,162 |
|
|
(413 |
) |
|
5,928 |
|
|
(1,879 |
) |
|
6,939 |
|
|
Net
income |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
541 |
|
|
— |
|
|
541 |
|
|
Other comprehensive income,
net of tax |
— |
|
|
— |
|
|
— |
|
|
22 |
|
|
— |
|
|
— |
|
|
22 |
|
|
Cash dividends declared on
common stock ($0.68 per share) |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(126 |
) |
|
— |
|
|
(126 |
) |
|
Purchase
of common stock |
(7.5 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(291 |
) |
|
(291 |
) |
|
Net issuance of common stock
under employee stock plans |
1.5 |
|
|
— |
|
|
(17 |
) |
|
— |
|
|
(25 |
) |
|
72 |
|
|
30 |
|
|
Share-based
compensation |
— |
|
|
— |
|
|
35 |
|
|
— |
|
|
— |
|
|
— |
|
|
35 |
|
|
Other |
— |
|
|
— |
|
|
(1 |
) |
|
— |
|
|
— |
|
|
1 |
|
|
— |
|
|
BALANCE
AT DECEMBER 31, 2013 |
182.3 |
|
|
1,141 |
|
|
2,179 |
|
|
(391 |
) |
|
6,318 |
|
|
(2,097 |
) |
|
7,150 |
|
|
Net
income |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
593 |
|
|
— |
|
|
593 |
|
|
Other comprehensive loss,
net of tax |
— |
|
|
— |
|
|
— |
|
|
(21 |
) |
|
— |
|
|
— |
|
|
(21 |
) |
|
Cash dividends declared on
common stock ($0.79 per share) |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(143 |
) |
|
— |
|
|
(143 |
) |
|
Purchase
of common stock |
(5.4 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(260 |
) |
|
(260 |
) |
|
Net issuance of common stock
under employee stock plans |
2.1 |
|
|
— |
|
|
(27 |
) |
|
— |
|
|
(24 |
) |
|
96 |
|
|
45 |
|
|
Share-based
compensation |
— |
|
|
— |
|
|
38 |
|
|
— |
|
|
— |
|
|
— |
|
|
38 |
|
|
Other |
— |
|
|
— |
|
|
(2 |
) |
|
— |
|
|
— |
|
|
2 |
|
|
— |
|
|
BALANCE
AT DECEMBER 31, 2014 |
179.0 |
|
|
$ |
1,141 |
|
|
$ |
2,188 |
|
|
$ |
(412 |
) |
|
$ |
6,744 |
|
|
$ |
(2,259 |
) |
|
$ |
7,402 |
|
See notes to
consolidated financial statements.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Comerica
Incorporated and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
|
|
|
|
|
Years
Ended December 31 |
2014 |
|
2013 |
|
2012 |
|
OPERATING
ACTIVITIES |
|
|
|
|
|
|
Net
income |
$ |
593 |
|
|
$ |
541 |
|
|
$ |
521 |
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities: |
|
|
|
|
|
|
Provision
for credit losses |
27 |
|
|
46 |
|
|
79 |
|
|
Provision
(benefit) for deferred income taxes |
130 |
|
|
(20 |
) |
|
158 |
|
|
Depreciation
and amortization |
123 |
|
|
122 |
|
|
133 |
|
|
Net
periodic defined benefit cost |
40 |
|
|
88 |
|
|
81 |
|
|
Share-based
compensation expense |
38 |
|
|
35 |
|
|
37 |
|
|
Net
amortization of securities |
13 |
|
|
23 |
|
|
48 |
|
|
Accretion
of loan purchase discount |
(34 |
) |
|
(49 |
) |
|
(71 |
) |
|
Net
securities losses (gains) |
— |
|
|
1 |
|
|
(12 |
) |
|
Net
(gain) loss/writedown on foreclosed property |
(4 |
) |
|
4 |
|
|
— |
|
|
Gain
on debt redemption |
(32 |
) |
|
(1 |
) |
|
— |
|
|
Excess
tax benefits from share-based compensation arrangements |
(7 |
) |
|
(3 |
) |
|
(1 |
) |
|
Net
change in: |
|
|
|
|
|
|
Trading
securities |
13 |
|
|
6 |
|
|
1 |
|
|
Accrued
income receivable |
(4 |
) |
|
7 |
|
|
5 |
|
|
Accrued
expenses payable |
(14 |
) |
|
38 |
|
|
35 |
|
|
Other,
net |
(243 |
) |
|
(2 |
) |
|
(322 |
) |
|
Net
cash provided by operating activities |
639 |
|
|
836 |
|
|
692 |
|
|
INVESTING
ACTIVITIES |
|
|
|
|
|
|
Investment
securities: |
|
|
|
|
|
|
Maturities
and redemptions |
1,781 |
|
|
2,849 |
|
|
3,839 |
|
|
Purchases |
(2,372 |
) |
|
(2,225 |
) |
|
(4,032 |
) |
|
Net
change in loans |
(3,144 |
) |
|
549 |
|
|
(3,498 |
) |
|
Sales
of Federal Home Loan Bank stock |
41 |
|
|
41 |
|
|
3 |
|
|
Proceeds
from sales of foreclosed property |
20 |
|
|
55 |
|
|
82 |
|
|
Net
increase in premises and equipment |
(70 |
) |
|
(102 |
) |
|
(75 |
) |
|
Other,
net |
1 |
|
|
7 |
|
|
5 |
|
|
Net
cash (used in) provided by investing activities |
(3,743 |
) |
|
1,174 |
|
|
(3,676 |
) |
|
FINANCING
ACTIVITIES |
|
|
|
|
|
|
Net
change in: |
|
|
|
|
|
|
Deposits |
4,013 |
|
|
1,229 |
|
|
4,520 |
|
|
Short-term
borrowings |
(137 |
) |
|
143 |
|
|
40 |
|
|
Medium-
and long-term debt: |
|
|
|
|
|
|
Maturities
and redemptions |
(1,406 |
) |
|
(1,080 |
) |
|
(193 |
) |
|
Issuances |
596 |
|
|
— |
|
|
— |
|
|
Common
stock: |
|
|
|
|
|
|
Repurchases |
(260 |
) |
|
(291 |
) |
|
(308 |
) |
|
Cash
dividends paid |
(137 |
) |
|
(123 |
) |
|
(97 |
) |
|
Issuances
under employee stock plans |
49 |
|
|
33 |
|
|
3 |
|
|
Excess
tax benefits from share-based compensation arrangements |
7 |
|
|
3 |
|
|
1 |
|
|
Other,
net |
(1 |
) |
|
(7 |
) |
|
(4 |
) |
|
Net
cash provided by (used in) financing activities |
2,724 |
|
|
(93 |
) |
|
3,962 |
|
|
Net
(decrease) increase in cash and cash equivalents |
(380 |
) |
|
1,917 |
|
|
978 |
|
|
Cash
and cash equivalents at beginning of period |
6,451 |
|
|
4,534 |
|
|
3,556 |
|
|
Cash
and cash equivalents at end of period |
$ |
6,071 |
|
|
$ |
6,451 |
|
|
$ |
4,534 |
|
|
Interest
paid |
$ |
101 |
|
|
$ |
114 |
|
|
$ |
135 |
|
|
Income
taxes, tax deposits and tax-related interest paid |
218 |
|
|
115 |
|
|
46 |
|
|
Noncash
investing and financing activities: |
|
|
|
|
|
|
Loans
transferred to other real estate |
16 |
|
|
14 |
|
|
42 |
|
|
Securities
transferred from available-for-sale to held-to-maturity |
1,958 |
|
|
— |
|
|
— |
|
See notes to
consolidated financial statements.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
NOTE
1 - BASIS OF
PRESENTATION AND ACCOUNTING POLICIES
Organization
Comerica Incorporated (the
Corporation) is a registered financial holding company headquartered in Dallas,
Texas. The Corporation’s major business segments are the Business Bank, the
Retail Bank and Wealth Management. The Corporation operates in three primary geographic markets:
Michigan, California and Texas. For further discussion of each business segment
and primary geographic market, refer to Note 22. The Corporation and its
banking subsidiaries are regulated at both the state and federal
levels.
The accounting and reporting
policies of the Corporation conform to United States (U.S.) generally accepted
accounting principles (GAAP). The preparation of financial statements in
conformity with GAAP requires management to make estimates and assumptions that
affect reported amounts and disclosures. Actual results could differ from these
estimates.
The following summarizes the
significant accounting policies of the Corporation applied in the preparation of
the accompanying consolidated financial statements.
Principles of
Consolidation
The consolidated financial
statements include the accounts of the Corporation and the accounts of those
subsidiaries that are majority owned and in which the Corporation has a
controlling financial interest. The Corporation consolidates entities not
determined to be variable interest entities (VIEs) when it holds a controlling
financial interest in the entity's outstanding voting stock and uses the cost or
equity method when it holds less than a controlling financial interest. In
consolidation, all significant intercompany accounts and transactions are
eliminated. The results of operations of companies acquired are included from
the date of acquisition. Certain amounts in the financial statements for prior
years have been reclassified to conform to current financial statement
presentation.
The Corporation holds investments
in certain legal entities that are considered VIEs. In general, a VIE is an
entity that either (1) has an insufficient amount of equity to carry out
its principal activities without additional subordinated financial support,
(2) has a group of equity owners that are unable to make significant
decisions about its activities, or (3) has a group of equity owners that do
not have the obligation to absorb losses or the right to receive returns
generated by its operations. If any of these characteristics are present, the
entity is subject to a variable interests consolidation model, and consolidation
is based on variable interests, not on ownership of the entity’s outstanding
voting stock. Variable interests are defined as contractual ownership or other
money interests in an entity that change with fluctuations in the entity’s net
asset value. The primary beneficiary is required to consolidate the VIE. The
primary beneficiary is defined as the party that has both the power to direct
the activities of the VIE that most significantly impact the entity’s economic
performance and the obligation to absorb losses or the right to receive benefits
that could be significant to the VIE. The maximum potential exposure to losses
relative to investments in VIEs is generally limited to the sum of the
outstanding book basis and unfunded commitments for future investments.
The Corporation evaluates its
investments in VIEs, both at inception and when there is a change in
circumstances that requires reconsideration, to determine if the Corporation is
the primary beneficiary and consolidation is required. The Corporation accounts
for unconsolidated VIEs using either the proportional, cost or equity method.
These investments are included in "accrued income and other assets" on the
consolidated balance sheets.
The proportional method is used
for investments in affordable housing projects that qualify for the low-income
housing tax credit (LIHTC). The equity method is used for other investments
where the Corporation has the ability to exercise significant influence over the
entity’s operation and financial policies, which is generally presumed to exist
if the Corporation owns more than a 20
percent voting
interest in the entity. Other unconsolidated equity investments that do not meet
the criteria to be accounted for under the equity method are accounted for under
the cost method. Amortization and other write-downs of LIHTC investments are
presented on a net basis as a component of the "provision for income taxes,"
while income, amortization and write-downs from cost and equity method
investments are recorded in “other noninterest income” on the consolidated
statements of income.
Assets held in an agency or
fiduciary capacity are not assets of the Corporation and are not included in the
consolidated financial statements.
See Note 9 for additional information about
the Corporation’s involvement with VIEs.
Fair Value
Measurements
The Corporation utilizes fair
value measurements to record fair value adjustments to certain assets and
liabilities and to determine fair value disclosures. The determination of fair
values of financial instruments often requires the use of estimates. In cases
where quoted market values in an active market are not available, the
Corporation uses present value techniques and other valuation methods to
estimate the fair values of its financial instruments. These valuation methods
require considerable judgment and the resulting estimates of fair value can be
significantly affected by the assumptions made and methods
used.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
Fair value is an estimate of the
exchange price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction (i.e., not a forced transaction, such as a
liquidation or distressed sale) between market participants at the measurement
date. Fair value is based on the assumptions market participants would use when
pricing an asset or liability.
Trading securities, investment
securities available-for-sale, derivatives and deferred compensation plan
liabilities are recorded at fair value on a recurring basis. Additionally, from
time to time, the Corporation may be required to record other assets and
liabilities at fair value on a nonrecurring basis, such as impaired loans, other
real estate (primarily foreclosed property), nonmarketable equity securities and
certain other assets and liabilities. These nonrecurring fair value adjustments
typically involve write-downs of individual assets or application of lower of
cost or fair value accounting.
Fair value measurements and
disclosures guidance establishes a three-level fair value hierarchy based on the
markets in which the assets and liabilities are traded and the reliability of
the assumptions used to determine fair value. The fair value hierarchy gives the
highest priority to quoted prices in active markets and the lowest priority to
unobservable data. Fair value measurements are separately disclosed by level
within the fair value hierarchy. For assets and liabilities recorded at fair
value, it is the Corporation’s policy to maximize the use of observable inputs
and minimize the use of unobservable inputs when developing fair value
measurements.
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Level 1 |
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Valuation
is based upon quoted prices for identical instruments traded in active
markets. |
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Level
2 |
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Valuation
is based upon quoted prices for similar instruments in active markets,
quoted prices for identical or similar instruments in markets that are not
active, and model-based valuation techniques for which all significant
assumptions are observable in the market. |
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Level
3 |
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Valuation
is generated from model-based techniques that use at least one significant
assumption not observable in the market. These unobservable assumptions
reflect estimates of assumptions that market participants would use in
pricing the asset or liability. Valuation techniques include use of option
pricing models, discounted cash flow models and similar
techniques. |
The Corporation generally
utilizes third-party pricing services to value Level 1 and Level 2 trading and
investment securities, as well as certain derivatives designated as fair value
hedges. Management reviews the methodologies and assumptions used by the
third-party pricing services and evaluates the values provided, principally by
comparison with other available market quotes for similar instruments and/or
analysis based on internal models using available third-party market data. The
Corporation may occasionally adjust certain values provided by the third-party
pricing service when management believes, as the result of its review, that the
adjusted price most appropriately reflects the fair value of the particular
security.
Fair value measurements for
assets and liabilities where limited or no observable market data exists are
based primarily upon estimates, often calculated based on the economic and
competitive environment, the characteristics of the asset or liability and other
factors. Therefore, the results cannot be determined with precision and may not
be realized in an actual sale or immediate settlement of the asset or liability.
Additionally, there may be inherent weaknesses in any calculation technique, and
changes in the underlying assumptions used, including discount rates and
estimates of future cash flows, could significantly affect the results of
current or future values.
Following are descriptions of the
valuation methodologies and key inputs used to measure financial assets and
liabilities recorded at fair value, as well as a description of the methods and
significant assumptions used to estimate fair value disclosures for financial
instruments not recorded at fair value in their entirety on a recurring basis.
The descriptions include an indication of the level of the fair value hierarchy
in which the assets or liabilities are classified. Transfers of assets or
liabilities between levels of the fair value hierarchy are recognized at the
beginning of the reporting period, when applicable.
Cash
and due from banks, federal funds sold and interest-bearing deposits with
banks
Due to their short-term nature,
the carrying amount of these instruments approximates the estimated fair value.
As such, the Corporation classifies the estimated fair value of these
instruments as Level 1.
Trading
securities and associated deferred compensation plan liabilities
Trading securities include
securities held for trading purposes as well as assets held related to employee
deferred compensation plans. Trading securities and associated deferred
compensation plan liabilities are recorded at fair value on a recurring basis
and included in “other short-term investments” and “accrued expenses and other
liabilities,” respectively, on the consolidated balance sheets. Level 1 trading
securities include assets related to employee deferred compensation plans, which
are invested in mutual funds, U.S. Treasury securities that are traded by
dealers or brokers in active over-the-counter markets and other securities
traded on an active exchange, such as the New York Stock Exchange. Deferred
compensation plan liabilities represent the fair value of the obligation to the
employee, which corresponds to the fair value of the invested assets. Level 2
trading securities include municipal bonds and residential mortgage-backed
securities issued by U.S. government-sponsored entities
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
and corporate debt securities.
The methods used to value trading securities are the same as the methods used to
value investment securities, discussed below.
Loans
held-for-sale
Loans held-for-sale, included in
“other short-term investments” on the consolidated balance sheets, are recorded
at the lower of cost or fair value. Loans held-for-sale may be carried at fair
value on a nonrecurring basis when fair value is less than cost. The fair value
is based on what secondary markets are currently offering for portfolios with
similar characteristics. As such, the Corporation classifies both loans
held-for-sale subjected to nonrecurring fair value adjustments and the estimated
fair value of loans held-for sale as Level 2.
Investment
securities
Investment securities
available-for-sale are recorded at fair value on a recurring basis. The
Corporation discloses estimated fair values of investment securities
held-to-maturity, which is determined in the same manner as investment
securities available-for-sale. Level 1 securities include those traded on an
active exchange, such as the New York Stock Exchange, U.S. Treasury securities
that are traded by dealers or brokers in active over-the-counter markets and
money market funds. Level 2 securities include residential mortgage-backed
securities issued by U.S. government agencies and U.S. government-sponsored
entities and corporate debt securities. The fair value of Level 2 securities is
determined using quoted prices of securities with similar characteristics, or
pricing models based on observable market data inputs, primarily interest rates,
spreads and prepayment information.
Securities classified as Level 3
represent securities in less liquid markets requiring significant management
assumptions when determining fair value. Auction-rate securities comprise Level
3 investment securities available-for-sale. Due to the lack of a robust
secondary auction-rate securities market with active fair value indicators, fair
value for all periods presented was determined using an income approach based on
a discounted cash flow model. The discounted cash flow model utilizes two
significant inputs: discount rate and workout period. The discount rate was
calculated using credit spreads of the underlying collateral or similar
securities plus a liquidity risk premium. The liquidity risk premium was derived
from the rate at which various types of similar auction-rate securities had been
redeemed or sold. The workout period was based on an assessment of publicly
available information on efforts to re-establish functioning markets for these
securities and the Corporation's own redemption experience. Significant
increases in any of these inputs in isolation would result in a significantly
lower fair value. The Corporate Development Department, with appropriate
oversight and approval provided by senior management, is responsible for
determining the valuation methodology for auction-rate securities and for
updating significant inputs based on changes to the factors discussed above.
Valuation results, including an analysis of changes to the valuation methodology
and significant inputs, are provided to senior management for review on a
quarterly basis.
Loans
The Corporation does not record
loans at fair value on a recurring basis. However, the Corporation may establish
a specific allowance for an impaired loan based on the fair value of the
underlying collateral. Such loan values are reported as nonrecurring fair value
measurements. Collateral values supporting individually evaluated impaired
loans are evaluated quarterly. When management determines that the fair value of
the collateral requires additional adjustments, either as a result of
non-current appraisal value or when there is no observable market price, the
Corporation classifies the impaired loan as Level 3. The Special Assets Group is
responsible for performing quarterly credit quality reviews for all impaired
loans as part of the quarterly allowance for loan losses process overseen by the
Chief Credit Officer, during which valuation adjustments to updated collateral
values are determined.
The Corporation discloses fair
value estimates for loans. The estimated fair value is determined based on
characteristics such as loan category, repricing features and remaining
maturity, and includes prepayment and credit loss estimates. For variable rate
business loans that reprice frequently, the estimated fair value is based on
carrying values adjusted for estimated credit losses inherent in the portfolio
at the balance sheet date. For other business loans and retail loans, fair
values are estimated using a discounted cash flow model that employs a discount
rate that reflects the Corporation's current pricing for loans with similar
characteristics and remaining maturity, adjusted by an amount for estimated
credit losses inherent in the portfolio at the balance sheet date. The rates
take into account the expected yield curve, as well as an adjustment for
prepayment risk, when applicable. The Corporation classifies the estimated fair
value of loans held for investment as Level 3.
Customers’
liability on acceptances outstanding and acceptances outstanding
Customers' liability on
acceptances outstanding is included in "accrued income and other assets" and
acceptances outstanding are included in "accrued expenses and other
liabilities" on the consolidated balance sheets. Due to their short-term nature,
the carrying amount of these instruments approximates the estimated fair value.
As such, the Corporation classifies the estimated fair value of these
instruments as Level 1.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
Derivative
assets and derivative liabilities
Derivative instruments held or
issued for risk management or customer-initiated activities are traded in
over-the-counter markets where quoted market prices are not readily available.
Fair value for over-the-counter derivative instruments is measured on a
recurring basis using internally developed models that use primarily market
observable inputs, such as yield curves and option volatilities. The Corporation
manages credit risk on its derivative positions based on whether the derivatives
are being settled through a clearinghouse or bilaterally with each counterparty.
For derivative positions settled on a counterparty-by-counterparty basis, the
Corporation calculates credit valuation adjustments, included in the fair value
of these instruments, on the basis of its relationships at the counterparty
portfolio/master netting agreement level. These credit valuation adjustments are
determined by applying a credit spread for the counterparty or the Corporation,
as appropriate, to the total expected exposure of the derivative after
considering collateral and other master netting arrangements. These adjustments,
which are considered Level 3 inputs, are based on estimates of current credit
spreads to evaluate the likelihood of default. The Corporation assessed the
significance of the impact of the credit valuation adjustments on the overall
valuation of its derivative positions and determined that the credit valuation
adjustments were not significant to the overall valuation of its derivatives. As
a result, the Corporation classifies its over-the-counter derivative valuations
in Level 2 of the fair value hierarchy. Examples of Level 2 derivative
instruments are interest rate swaps and energy derivative and foreign exchange
contracts.
Warrants which contain a net
exercise provision or a non-contingent put right embedded in the warrant
agreement are accounted for as derivatives and recorded at fair value on a
recurring basis using a Black-Scholes valuation model. The Black-Scholes
valuation model utilizes five inputs: risk-free rate, expected life, volatility,
exercise price, and the per share market value of the underlying company. The
Corporation holds a portfolio of warrants for generally nonmarketable equity
securities with a fair value of $4
million at
December 31,
2014, included in
"accrued income and other assets" on the consolidated balance sheets. These
warrants are primarily from non-public technology companies obtained as part of
the loan origination process. The Corporate Development Department is
responsible for the warrant valuation process, which includes reviewing all
significant inputs for reasonableness, and for providing valuation results to
senior management. Increases in any of these inputs in isolation, with the
exception of exercise price, would result in a higher fair value. Increases in
exercise price in isolation would result in a lower fair value. The Corporation
classifies warrants accounted for as derivatives as Level 3.
The Corporation also holds a
derivative contract associated with the 2008 sale of its remaining ownership of
Visa Inc. (Visa) Class B shares. Under the terms of the derivative contract, the
Corporation will compensate the counterparty primarily for dilutive adjustments
made to the conversion factor of the Visa Class B to Class A shares based
on the ultimate outcome of litigation involving Visa. Conversely, the
Corporation will be compensated by the counterparty for any increase in the
conversion factor from anti-dilutive adjustments. At December 31,
2014, the fair value
of the contract was a liability of $1 million. The recurring fair value of the
derivative contract is based on unobservable inputs consisting of management's
estimate of the litigation outcome, timing of litigation settlements and
payments related to the derivative. Significant increases in the estimate of
litigation outcome and the timing of litigation settlements in isolation would
result in a significantly higher liability fair value. Significant increases in
payments related to the derivative in isolation would result in a significantly
lower liability fair value. The Corporation classifies the derivative liability
as Level 3.
Nonmarketable
equity securities
The Corporation has a portfolio
of indirect (through funds) private equity and venture capital investments with
a carrying value and unfunded commitments of $11
million and
$5
million,
respectively, at December 31,
2014. These funds
generally cannot be redeemed and the majority is not readily marketable.
Distributions from these funds are received by the Corporation as a result of
the liquidation of underlying investments of the funds and/or as income
distributions. It is estimated that the underlying assets of the funds will be
liquidated over a period of up to 15 years. Recently issued federal regulations
will require the Corporation to sell certain of these funds prior to
liquidation. The investments are accounted for either on the cost or equity
method and are individually reviewed for impairment on a quarterly basis by
comparing the carrying value to the estimated fair value. These investments may
be carried at fair value on a nonrecurring basis when they are deemed to be
impaired and written down to fair value. Where there is not a readily
determinable fair value, the Corporation estimates fair value for indirect
private equity and venture capital investments based on the net asset value, as
reported by the fund, after indication that the fund adheres to applicable fair
value measurement guidance. On a quarterly basis, the Corporate Development
Department is responsible, with appropriate oversight and approval provided by
senior management, for performing the valuation procedures and updating
significant inputs, as are primarily provided by the underlying fund's
management. The Corporation classifies fair value measurements of nonmarketable
equity securities as Level 3.
The Corporation also holds
restricted equity investments, primarily Federal Home Loan Bank (FHLB) and
Federal Reserve Bank (FRB) stock. Restricted equity securities are not readily
marketable and are recorded at cost (par value) in "accrued income and other
assets" on the consolidated balance sheets and evaluated for impairment based on
the ultimate recoverability of the par value. No significant observable market
data for these instruments is available. The Corporation considers the
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
profitability and asset quality
of the issuer, dividend payment history and recent redemption experience when
determining the ultimate recoverability of the par value. The Corporation’s
investment in FHLB stock totaled $7
million and
$48
million at
December 31,
2014 and
2013, respectively, and its
investment in FRB stock totaled $85
million at both
December 31,
2014 and
2013. The Corporation believes its
investments in FHLB and FRB stock are ultimately recoverable at par. Therefore,
the carrying amount for these restricted equity investments approximates fair
value. The Corporation classifies the estimated fair value of such investments
as Level 1.
Other
real estate
Other real estate is included in
“accrued income and other assets” on the consolidated balance sheets and
includes primarily foreclosed property. Foreclosed property is initially
recorded at fair value, less costs to sell, at the date of foreclosure,
establishing a new cost basis. Subsequently, foreclosed property is carried at
the lower of cost or fair value, less costs to sell. Other real estate may be
carried at fair value on a nonrecurring basis when fair value is less than cost.
Fair value is based upon independent market prices, appraised value or
management's estimate of the value of the property. The Special Assets Group
obtains updated independent market prices and appraised values, as required by
state regulation or deemed necessary based on market conditions, and determines
if additional write-downs are necessary. On a quarterly basis, senior
management reviews all other real estate and determines whether the carrying
values are reasonable, based on the length of time elapsed since receipt of
independent market price or appraised value and current market conditions. When
management determines that the fair value of other real estate requires
additional adjustments, either as a result of a non-current appraisal or when
there is no observable market price, the Corporation classifies the other real
estate as Level 3.
Deposit
liabilities
The estimated fair value of
checking, savings and certain money market deposit accounts is represented by
the amounts payable on demand. The estimated fair value of term deposits is
calculated by discounting the scheduled cash flows using the period-end rates
offered on these instruments. As such, the Corporation classifies the estimated
fair value of deposit liabilities as Level 2.
Short-term
borrowings
The carrying amount of federal
funds purchased, securities sold under agreements to repurchase and other
short-term borrowings approximates the estimated fair value. As such, the
Corporation classifies the estimated fair value of short-term borrowings as
Level 1.
Medium-
and long-term debt
The carrying value of
variable-rate FHLB advances approximates the estimated fair value. The estimated
fair value of the Corporation's remaining variable- and fixed-rate medium- and
long-term debt is based on quoted market values when available. If quoted market
values are not available, the estimated fair value is based on the market values
of debt with similar characteristics. The Corporation classifies the estimated
fair value of medium- and long-term debt as Level 2.
Credit-related
financial instruments
Credit-related financial
instruments include unused commitments to extend credit and letters of credit.
These instruments generate ongoing fees which are recognized over the term of
the commitment. In situations where credit losses are probable, the Corporation
records an allowance. The carrying value of these instruments included in
"accrued expenses and other liabilities" on the consolidated balance sheets,
which includes the carrying value of the deferred fees plus the related
allowance, approximates the estimated fair value. The Corporation classifies the
estimated fair value of credit-related financial instruments as Level
3.
For further information about
fair value measurements refer to Note 2.
Other
Short-Term Investments
Other short-term investments
include trading securities and loans
held-for-sale.
Trading securities are carried at
fair value. Realized and unrealized gains or losses on trading securities are
included in “other noninterest income” on the consolidated statements of
income.
Loans held-for-sale, typically
residential mortgages originated with the intent to sell, are carried at the
lower of cost or fair value. Fair value is determined in the aggregate for each
portfolio. Changes in fair value are included in “other noninterest income” on
the consolidated statements of income.
Investment
Securities
Securities not held for trading
purposes are classified as available-for-sale or held-to-maturity. Only those
debt securities for which management has the intent and ability to hold to
maturity are classified as held-to-maturity and recorded at amortized
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
cost. Securities
available-for-sale are recorded at fair value, with unrealized gains and losses,
net of income taxes, reported as a separate component of other comprehensive
income (loss) (OCI).
Securities transferred from
available-for-sale to held-to-maturity are reclassified at fair value on the
date of transfer. The net unrealized gain (loss) at the date of transfer is
included in historical cost and amortized over the remaining life of the related
securities as a yield adjustment consistent with the amortization of the net
unrealized gain (loss) included in accumulated other comprehensive loss on the
same securities, resulting in no impact to net income.
Investment securities are
reviewed quarterly for possible other-than-temporary impairment (OTTI). In
determining whether OTTI exists for debt securities in an unrealized loss
position, the Corporation assesses the likelihood of selling the security prior
to the recovery of its amortized cost basis. If the Corporation intends to sell
the debt security or it is more likely than not that the Corporation will be
required to sell the debt security prior to the recovery of its amortized cost
basis, the debt security is written down to fair value, and the full amount of
any impairment charge is recorded as a loss in “net securities gains” in the
consolidated statements of income. If the Corporation does not intend to sell
the debt security and it is more likely than not that the Corporation will not
be required to sell the debt security prior to recovery of its amortized cost
basis, only the credit component of any impairment of a debt security is
recognized as a loss in “net securities gains” on the consolidated statements of
income, with the remaining impairment recorded in OCI.
The OTTI review for equity
securities includes an analysis of the facts and circumstances of each
individual investment and focuses on the severity of loss, the length of time
the fair value has been below cost, the expectation for that security’s
performance, the financial condition and near-term prospects of the issuer, and
management’s intent and ability to hold the security to recovery. A decline in
value of an equity security that is considered to be other-than-temporary is
recorded as a loss in “net securities (losses) gains” on the consolidated
statements of income.
Gains or losses on the sale of
securities are computed based on the adjusted cost of the specific security
sold.
For further information on
investment securities, refer to Note 3.
Loans
Loans and leases originated and
held for investment are recorded at the principal balance outstanding, net of
unearned income, charge-offs and unamortized deferred fees and costs. Interest
income is recognized on loans and leases using the interest method.
Loans and leases acquired in
business combinations are initially recorded at fair value with no carryover of
any existing allowance for loan losses. Acquired loans with evidence of credit
quality deterioration at acquisition are reviewed to determine if it is probable
that the Corporation will not be able to collect all contractual amounts due,
including both principal and interest. When both conditions exist, such loans
are accounted for as purchased credit-impaired (PCI) loans. The Corporation
generally aggregates PCI loans into pools of loans based on common risk
characteristics.
The Corporation estimates the
total cash flows expected to be collected from the pools of acquired PCI loans,
which include undiscounted expected principal and interest, using credit risk,
interest rate and prepayment risk models that incorporate management's best
estimate of current key assumptions such as default rates, loss severity and
payment speeds. The excess of the undiscounted total cash flows expected to be
collected over the fair value of the related PCI loans represents the accretable
yield, which is recognized as interest income on a level-yield basis over the
life of the related loan pools. The difference between the undiscounted
contractual principal and interest and the undiscounted total cash flows
expected to be collected is the nonaccretable difference, which reflects the
impact of estimated credit losses and other factors. Subsequent increases in
expected cash flows will result in a recovery of any previously recorded
allowance for loan losses, to the extent applicable, and a reclassification from
nonaccretable difference to accretable yield, which is recognized prospectively
over the then remaining lives of the loan pools. Subsequent decreases in
expected cash flows will result in an impairment charge to the provision for
loan losses, resulting in an addition to the allowance for loan losses, and a
reclassification from accretable yield to nonaccretable difference. A loan
disposal, which may include a loan sale, receipt of payment in full from the
borrower or foreclosure, results in removal of the loan from the acquired PCI
loan pool at its allocated carrying amount. Refinanced or restructured loans
remain within the acquired PCI loan pools.
For acquired loans not deemed
credit-impaired at acquisition, the difference between the initial fair value
and the unpaid principal balance is recognized as interest income on a
level-yield basis over the lives of the related loans.
The Corporation assesses all loan
modifications to determine whether a restructuring constitutes a troubled debt
restructuring (TDR). A restructuring is considered a TDR when a borrower is
experiencing financial difficulty and the Corporation grants a concession to the
borrower. TDRs on accrual status at the original contractual rate of interest
are considered performing.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
Nonperforming TDRs include TDRs
on nonaccrual status and loans which have been renegotiated to less than the
original contractual rates (reduced-rate loans). All TDRs are considered
impaired loans.
Loan
Origination Fees and Costs
Substantially all loan
origination fees and costs are deferred and amortized to net interest income of
over the life of the related loan or over the commitment period as a yield
adjustment. Net deferred income on originated loans, including unearned income
and unamortized costs, fees, premiums and discounts, totaled $267
million and
$287
million at
December 31,
2014 and
2013, respectively.
Loan fees on unused commitments
and net origination fees related to loans sold are recognized in noninterest
income.
Allowance
for Credit Losses
The allowance for credit losses
includes both the allowance for loan losses and the allowance for credit losses
on lending-related commitments.
The Corporation disaggregates the
loan portfolio into segments for purposes of determining the allowance for
credit losses. These segments are based on the level at which the Corporation
develops, documents and applies a systematic methodology to determine the
allowance for credit losses. The Corporation's portfolio segments are business
loans and retail loans. Business loans are defined as those belonging to the
commercial, real estate construction, commercial mortgage, lease financing and
international loan portfolios. Retail loans consist of traditional residential
mortgage, home equity and other consumer loans.
For further information on the
Allowance for Credit Losses, refer to Note 4.
Allowance
for Loan Losses
The allowance for loan losses
represents management’s assessment of probable, estimable losses inherent in the
Corporation’s loan portfolio. The allowance for loan losses includes specific
allowances, based on individual evaluations of certain loans, and allowances for
homogeneous pools of loans with similar risk characteristics.
The Corporation individually
evaluates certain impaired loans on a quarterly basis and establishes specific
allowances for such loans, if required. A loan is considered impaired when it is
probable that interest or principal payments will not be made in accordance with
the contractual terms of the loan agreement. Consistent with this definition,
all loans for which the accrual of interest has been discontinued (nonaccrual
loans) are considered impaired. The Corporation individually evaluates
nonaccrual loans with book balances of $2
million or more and
accruing loans whose terms have been modified in a TDR. The threshold for
individual evaluation is revised on an infrequent basis, generally when economic
circumstances change significantly. Specific allowances for impaired loans are
estimated using one of several methods, including the estimated fair value of
underlying collateral, observable market value of similar debt or discounted
expected future cash flows. Collateral values supporting individually evaluated
impaired loans are evaluated quarterly. Either appraisals are obtained or
appraisal assumptions are updated at least annually unless conditions dictate
increased frequency. The Corporation may reduce the collateral value based upon
the age of the appraisal and adverse developments in market
conditions.
Loans which do not meet the
criteria to be evaluated individually are evaluated in homogeneous pools of
loans with similar risk characteristics. Business loans are assigned to pools
based on the Corporation's internal risk rating system. Internal risk ratings
are assigned to each business loan at the time of approval and are subjected to
subsequent periodic reviews by the Corporation’s senior management, generally at
least annually or more frequently upon the occurrence of a circumstance that
affects the credit risk of the loan. For business loans not individually
evaluated, losses inherent to the pool are estimated by applying standard
reserve factors to outstanding principal balances. Standard reserve factors are
based on estimated probabilities of default for each internal risk rating, set
to a default horizon based on an estimated loss emergence period, and loss given
default. These factors are evaluated quarterly and updated annually, unless
economic conditions necessitate a change, giving consideration to count-based
borrower risk rating migration experience and trends, recent charge-off
experience, current economic conditions and trends, changes in collateral values
of properties securing loans, and trends with respect to past due and nonaccrual
amounts.
The allowance for business loans
not individually evaluated also includes qualitative adjustments to bring the
allowance to the level management believes is appropriate based on factors that
have not otherwise been fully accounted for, including adjustments for (i) risk
factors that have not been fully addressed in internal risk ratings, (ii)
imprecision in the risk rating system resulting from inaccuracy in assigning
and/or entering risk ratings in the loan accounting system, (iii) market
conditions and (iv) model imprecision. Risk factors that have not been fully
addressed in internal risk ratings may include portfolios where recent
historical losses exceed expected losses or known recent events are expected to
alter risk ratings once evidence is acquired, portfolios where a certain level
of concentration introduces added risk, or changes in the level and quality of
experience held by lending management. An additional allowance for risk rating
errors is calculated based on the results of risk rating accuracy assessments
performed on samples of business loans conducted by the Corporation's asset
quality review function, a function independent of
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
the lending and credit groups
responsible for assigning the initial internal risk rating at the time of
approval. Qualitative adjustments for market conditions are determined based on
an established framework. The determination of the appropriate adjustment is
based on management's analysis of observable macroeconomic metrics, including
consideration of regional metrics within the Corporation's footprint, internal
credit risk movement and a qualitative assessment of the lending environment,
including underwriting standards, current economic and political conditions, and
other factors affecting credit quality. Management recognizes the sensitivity of
various assumptions made in the quantitative modeling of expected losses and may
adjust reserves depending upon the level of uncertainty that currently exists in
one or more assumption.
In the second quarter 2014, the
Corporation enhanced the approach used to determine the standard reserve factors
used in estimating the allowance for credit losses, which had the effect of
capturing certain elements in the standard reserve component that had formerly
been included in the qualitative assessment. The impact of the change was
largely neutral to the total allowance for loan losses at June 30, 2014.
However, because standard reserves are allocated to the segments at the loan
level, while qualitative reserves are allocated at the portfolio level, the
impact of the methodology change on the allowance of each segment reflected the
characteristics of the individual loans within each segment's portfolio, causing
segment reserves to increase or decrease accordingly.
In the first quarter 2013, the
Corporation enhanced the approach utilized for determining standard reserve
factors by changing from a dollar-based migration method for developing
probability of default statistics to a count-based method. Under the
dollar-based method, each dollar that moved to default received equal weight in
the determination of standard reserve factors for each internal risk rating. As
a result, the movement of larger loans impacted standard reserve factors more
than the movement of smaller loans. By moving to a count-based approach, where
each loan that moves to default receives equal weighting, unusually large or
small loans will not have a disproportionate influence on the standard reserve
factors. The change resulted in a $40
million increase to
the allowance for loan losses at March 31, 2013.
The allowance for retail loans
not individually evaluated is determined by applying estimated loss rates to
various pools of loans within the portfolios with similar risk characteristics.
Estimated loss rates for all pools are updated quarterly, incorporating factors
such as recent charge-off experience, current economic conditions and trends,
changes in collateral values of properties securing loans (using index-based
estimates), and trends with respect to past due and nonaccrual
amounts.
Loans acquired in business
combinations are initially recorded at fair value, which includes an estimate of
credit losses expected to be realized over the remaining lives of the loans, and
therefore no corresponding allowance for loan losses is recorded for these loans
at acquisition. Methods utilized to estimate any subsequently required allowance
for loan losses for acquired loans not deemed credit-impaired at acquisition are
similar to originated loans; however, the estimate of loss is based on the
unpaid principal balance less any remaining purchase discount.
The total allowance for loan
losses is sufficient to absorb incurred losses inherent in the total portfolio.
Unanticipated economic events, including political, economic and regulatory
instability in countries where the Corporation has loans, could cause changes in
the credit characteristics of the portfolio and result in an unanticipated
increase in the allowance. Significant increases in current portfolio exposures,
as well as the inclusion of additional industry-specific portfolio exposures in
the allowance, could also increase the amount of the allowance. Any of these
events, or some combination thereof, may result in the need for additional
provision for credit losses in order to maintain an allowance that complies with
credit risk and accounting policies.
Loans deemed uncollectible are
charged off and deducted from the allowance. The provision for loan losses and
recoveries on loans previously charged off are added to the
allowance.
Allowance
for Credit Losses on Lending-Related Commitments
The allowance for credit losses
on lending-related commitments provides for probable losses inherent in
lending-related commitments, including unused commitments to extend credit and
letters of credit. The allowance for credit losses on lending-related
commitments includes allowances based on homogeneous pools of letters of credit
and unused commitments to extend credit within each internal risk rating. A
probability of draw estimate is applied to the commitment amount, and the result
is multiplied by standard reserve factors consistent with business loans. In
general, the probability of draw for letters of credit is considered certain for
all letters of credit supporting loans and for letters of credit assigned an
internal risk rating generally consistent with regulatory defined substandard or
doubtful. Other letters of credit and all unfunded commitments have a lower
probability of draw. The allowance for credit losses on lending-related
commitments is included in “accrued expenses and other liabilities” on the
consolidated balance sheets, with the corresponding charge reflected in the
“provision for credit losses” on the consolidated statements of
income.
Nonperforming
Assets
Nonperforming assets consist of
nonaccrual loans, including loans held-for-sale, reduced-rate loans and
foreclosed property.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
A loan is considered past due
when the contractually required principal or interest payment is not received by
the specified due date or, for certain loans, when a scheduled monthly payment
is past due and unpaid for 30 days or more. Business loans are generally placed
on nonaccrual status when management determines full collection of principal or
interest is unlikely or when principal or interest payments are 90 days past
due, unless the loan is fully collateralized and in the process of collection.
Business loans typically require individual evaluation and management judgment
to determine the timing and amount of principal charge-offs. The past-due status
of a business loan is one of many indicative factors considered in determining
the collectibility of the credit. The primary driver of when the principal
amount of a business loan should be fully or partially charged-off is based on a
qualitative assessment of the recoverability of the principal amount from
collateral and other cash flow sources. Residential mortgage and home equity
loans are generally placed on nonaccrual status once they become 90 days past
due and are charged off to current appraised values less costs to sell no later
than 180 days past due. In addition, junior lien home equity loans less than 90
days past due are placed on nonaccrual status if they have underlying risk
characteristics that place full collection of the loan in doubt, such as when
the related senior lien position is seriously delinquent. Residential mortgage
and consumer loans in bankruptcy for which the court has discharged the
borrower's obligation and the borrower has not reaffirmed the debt are placed on
nonaccrual status and written down to estimated collateral value, without regard
to the actual payment status of the loan, and are classified as TDRs. All other
consumer loans are generally not placed on nonaccrual status and are charged off
at no later than 120 days past due, earlier if deemed uncollectible.
At the time a loan is placed on
nonaccrual status, interest previously accrued but not collected is charged
against current income. Income on such loans is then recognized only to the
extent that cash is received and future collection of principal is probable.
Generally, a loan may be returned to accrual status when all delinquent
principal and interest have been received and the Corporation expects repayment
of the remaining contractual principal and interest, or when the loan or debt
security is both well secured and in the process of collection.
PCI loans are recorded at fair
value at acquisition date. Although the PCI loans may be contractually
delinquent, the Corporation does not classify these loans as past due or
nonperforming as the loans were written down to fair value at the acquisition
date and the accretable yield is recognized in interest income over the
remaining life of the loan.
Foreclosed property (primarily
real estate) is initially recorded at fair value, less costs to sell, at the
date of foreclosure and subsequently carried at the lower of cost or fair value,
less estimated costs to sell. Independent appraisals are obtained to
substantiate the fair value of foreclosed property at the time of foreclosure
and updated at least annually or upon evidence of deterioration in the
property’s value. At the time of foreclosure, any excess of the related loan
balance over fair value (less estimated costs to sell) of the property acquired
is charged to the allowance for loan losses. Subsequent write-downs, operating
expenses and losses upon sale, if any, are charged to noninterest expenses.
Foreclosed property is included in “accrued income and other assets” on the
consolidated balance sheets.
Premises and
Equipment
Premises and equipment are stated
at cost, less accumulated depreciation and amortization. Depreciation, computed
on the straight-line method, is charged to operations over the estimated useful
lives of the assets. Estimated useful lives are generally 3 years to 33 years
for premises that the Corporation owns and 3 years to 8 years for furniture and
equipment. Leasehold improvements are generally amortized over the terms of
their respective leases or 10 years, whichever is shorter.
Software
Capitalized software is stated at
cost, less accumulated amortization. Capitalized software includes purchased
software and capitalizable application development costs associated with
internally-developed software. Amortization, computed on the straight-line
method, is charged to operations over 5 years, the estimated useful life of the
software. Capitalized software is included in “accrued income and other assets”
on the consolidated balance sheets.
Goodwill and
Core Deposit Intangibles
Goodwill, included in "accrued
income and other assets" on the consolidated balance sheets, is initially
recorded as the excess of the purchase price over the fair value of net assets
acquired in a business combination and is subsequently evaluated at least
annually for impairment. Goodwill impairment testing is performed at the
reporting unit level, equivalent to a business segment or one level below. The
Corporation has three
reporting units: the Business Bank, the Retail Bank and Wealth
Management.
The Corporation performs its
annual evaluation of goodwill impairment in the third quarter of each year and
on an interim basis if events or changes in circumstances between annual tests
suggest additional testing may be warranted to determine if goodwill might be
impaired. The goodwill impairment test is a two-step test. The first step of the
goodwill impairment test compares the estimated fair value of identified
reporting units with their carrying amount, including goodwill. If the estimated
fair value of the reporting unit is less than the carrying value, the second
step must be performed to determine the implied fair value of the
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
reporting unit's goodwill and the
amount of goodwill impairment, if any. The implied fair value of goodwill is
determined as if the reporting unit were being acquired in a business
combination. If the implied fair value of goodwill exceeds the goodwill assigned
to the reporting unit, there is no impairment. If the goodwill assigned to a
reporting unit exceeds the implied fair value of goodwill, an impairment charge
would be recorded for the excess.
In performing the annual
impairment test, the carrying value of each reporting unit is the greater of
economic or regulatory capital. The Corporation assigns economic capital using
internal management methodologies on the basis of each reporting unit's credit,
operational and interest rate risks, as well as goodwill. To determine
regulatory capital, each reporting unit is assigned sufficient capital such that
their respective Tier 1 ratio, based on allocated risk-weighted assets, is the
same as that of the Corporation. Using this two-pronged approach, the
Corporation's equity is fully allocated to its reporting units except for
capital held primarily for the risk associated with the securities portfolio
which is assigned to the Finance segment of the Corporation.
The estimated fair values of the
reporting units are determined using a blend of two commonly used valuation
techniques: the market approach and the income approach. For the market
approach, valuations of reporting units consider a combination of earnings,
equity and other multiples from companies with characteristics similar to the
reporting unit. Since the fair values determined under the market approach are
representative of noncontrolling interests, the valuations accordingly
incorporate a control premium. For the income approach, estimated future cash
flows and terminal value are discounted. Estimated future cash flows are
derived from internal forecasts and economic expectations for each reporting
unit which incorporate uncertainty factors inherent to long-term projections.
The applicable discount rate is based on the imputed cost of equity capital
appropriate for each reporting unit, which incorporates the risk-free rate of
return, the level of non-diversified risk associated with companies with
characteristics similar to the reporting unit, an entity-specific risk premium
and a market equity risk premium. Determining the fair value of reporting units
is a subjective process involving the use of estimates and judgments related to
the selection of inputs such as future cash flows, discount rates, comparable
public company multiples, applicable control premiums and economic expectations
used in determining the interest rate environment.
The Corporation may choose to
perform a qualitative assessment to determine whether the first step of the
impairment test should be performed in future periods if certain factors
indicate that impairment is unlikely. Factors which could be considered in the
assessment of the likelihood of impairment include macroeconomic conditions,
industry and market considerations, stock performance of the Corporation and its
peers, financial performance, events affecting the Corporation as a whole or its
reporting units individually and previous results of goodwill impairment
tests.
Core deposit intangibles are
amortized on an accelerated basis, based on the estimated period the economic
benefits are expected to be received. Core deposit intangibles are reviewed for
impairment when events or changes in circumstances indicate that their carrying
amounts may not be recoverable. Impairment for a finite-lived intangible asset
exists if the sum of the undiscounted cash flows expected to result from the use
of the asset exceeds its carrying value.
Additional information regarding
goodwill and core deposit intangibles can be found in Note 7.
Nonmarketable
Equity Securities
The Corporation has certain
investments that are not readily marketable. These investments include a
portfolio of investments in indirect private equity and venture capital funds
and restricted equity investments, which are securities the Corporation is
required to hold for various reasons, primarily Federal Home Loan Bank of Dallas
(FHLB) and Federal Reserve Bank (FRB) stock. These investments are accounted for
on the cost or equity method and are included in “accrued income and other
assets” on the consolidated balance sheets. The investments are individually
reviewed for impairment on a quarterly basis. Indirect private equity and
venture capital funds are evaluated by comparing the carrying value to the
estimated fair value. The amount by which the carrying value exceeds the fair
value that is determined to be other-than-temporary impairment is charged to
current earnings and the carrying value of the investment is written down
accordingly. FHLB and FRB stock are recorded at cost (par value) and evaluated
for impairment based on the ultimate recoverability of the par value. If the
Corporation does not expect to recover the full par value, the amount by which
the par value exceeds the ultimately recoverable value would be charged to
current earnings and the carrying value of the investment would be written down
accordingly.
Derivative
Instruments and Hedging Activities
Derivative instruments are
carried at fair value in either “accrued income and other assets” or “accrued
expenses and other liabilities” on the consolidated balance sheets. The
accounting for changes in the fair value (i.e., gains or losses) of a derivative
instrument is determined by whether it has been designated and qualifies as part
of a hedging relationship and, further, by the type of hedging relationship. The
Corporation presents derivative instruments at fair value in the consolidated
balance sheets on a net basis when a right of offset exists, based on
transactions with a single counterparty and any cash collateral paid to and/or
received from that counterparty for derivative contracts that are subject to
legally enforceable master netting arrangements. For derivative instruments
designated and qualifying as fair value hedges (i.e., hedging the exposure to
changes in the fair value of an asset or a
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
liability or an identified
portion thereof that is attributable to a particular risk), the gain or loss on
the derivative instrument, as well as the offsetting loss or gain on the hedged
item attributable to the hedged risk, are recognized in current earnings during
the period of the change in fair values. For derivative instruments that are
designated and qualify as cash flow hedges (i.e., hedging the exposure to
variability in expected future cash flows that is attributable to a particular
risk), the effective portion of the gain or loss on the derivative instrument is
reported as a component of other comprehensive income and reclassified into
earnings in the same period or periods during which the hedged transaction
affects earnings. The remaining gain or loss on the derivative instrument in
excess of the cumulative change in the present value of future cash flows of the
hedged item (i.e., the ineffective portion), if any, is recognized in current
earnings during the period of change. For derivative instruments not designated
as hedging instruments, the gain or loss is recognized in current earnings
during the period of change.
For derivatives designated as
hedging instruments at inception, the Corporation uses either the short-cut
method or applies statistical regression analysis to assess effectiveness. The
short-cut method is used for $700
million notional of
fair value hedges of medium and long-term debt issued prior to 2006. This method
allows for the assumption of zero hedge ineffectiveness and eliminates the
requirement to further assess hedge effectiveness on these transactions. For
hedge relationships to which the Corporation does not apply the short-cut
method, statistical regression analysis is used at inception and for each
reporting period thereafter to assess whether the derivative used has been and
is expected to be highly effective in offsetting changes in the fair value or
cash flows of the hedged item. All components of each derivative instrument’s
gain or loss are included in the assessment of hedge effectiveness. Net hedge
ineffectiveness is recorded in “other noninterest income” on the consolidated
statements of income.
Further information on the
Corporation’s derivative instruments and hedging activities is included in
Note 8.
Short-Term
Borrowings
Securities sold under agreements
to repurchase are treated as collateralized borrowings and are recorded at
amounts equal to the cash received. The contractual terms of the agreements to
repurchase may require the Corporation to provide additional collateral if the
fair value of the securities underlying the borrowings declines during the term
of the agreement.
Financial
Guarantees
Certain guarantee contracts or
indemnification agreements that contingently require the Corporation, as
guarantor, to make payments to the guaranteed party are initially measured at
fair value and included in “accrued expenses and other liabilities” on the
consolidated balance sheets. The subsequent accounting for the liability depends
on the nature of the underlying guarantee. The release from risk is accounted
for under a particular guarantee when the guarantee expires or is settled, or by
a systematic and rational amortization method.
Further information on the
Corporation’s obligations under guarantees is included in Note 8.
Share-Based
Compensation
The Corporation recognizes
share-based compensation expense using the straight-line method over the
requisite service period for all stock awards, including those with graded
vesting. The requisite service period is the period an employee is required to
provide service in order to vest in the award, which cannot extend beyond the
date at which the employee is no longer required to perform any service to
receive the share-based compensation (the retirement-eligible date). Certain
awards are contingent upon performance and/or market conditions, which affect
the number of shares ultimately issued. The Corporation periodically evaluates
the probable outcome of the performance conditions and makes cumulative
adjustments to compensation expense as appropriate. Market conditions are
included in the determination of the fair value of the award on the date of
grant. Subsequent to the grant date, market conditions have no impact on
the amount of compensation expense the Corporation will recognize over the life
of the award.
Further information on the
Corporation’s share-based compensation plans is included in Note 16.
Revenue
Recognition
The following summarizes the
Corporation’s revenue recognition policies as they relate to certain noninterest
income line items in the consolidated statements of income.
Service charges on deposit
accounts include fees for banking services provided, overdrafts and
non-sufficient funds. Revenue is generally recognized in accordance with
published deposit account agreements for retail accounts or contractual
agreements for commercial accounts.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
Fiduciary income includes fees
and commissions from asset management, custody, recordkeeping, investment
advisory and other services provided to personal and institutional trust
customers. Revenue is recognized on an accrual basis at the time the services
are performed and are based on either the market value of the assets managed or
the services provided.
Commercial lending fees primarily
include fees assessed on the unused portion of commercial lines of credit
("unused commitment fees") and syndication agent fees. Unused commitment fees
are recognized when earned. Syndication agent fees are generally recognized when
the transaction is complete.
Card fees includes primarily
bankcard interchange revenue which is recorded as revenue when earned.
Defined
Benefit Pension and Other Postretirement Costs
Defined benefit pension costs are
included in “salaries and benefits expense" on the consolidated statements of
income and are funded consistent with the requirements of federal laws and
regulations. Inherent in the determination of defined benefit pension costs are
assumptions concerning future events that will affect the amount and timing of
required benefit payments under the plans. These assumptions include demographic
assumptions such as retirement age and mortality, a compensation rate increase,
a discount rate used to determine the current benefit obligation and a long-term
expected rate of return on plan assets. Net periodic defined benefit pension
expense includes service cost, interest cost based on the assumed discount rate,
an expected return on plan assets based on an actuarially derived market-related
value of assets, amortization of prior service cost and amortization of net
actuarial gains or losses. The market-related value of plan assets is determined
by amortizing the current year’s investment gains and losses (the actual
investment return net of the expected investment return) over 5 years. The
amortization adjustment cannot exceed 10
percent of the fair
value of assets. Prior service costs include the impact of plan amendments on
the liabilities and are amortized over the future service periods of active
employees expected to receive benefits under the plan. Actuarial gains and
losses result from experience different from that assumed and from changes in
assumptions (excluding asset gains and losses not yet reflected in
market-related value). Amortization of actuarial gains and losses is included as
a component of net periodic defined benefit pension cost for a year if the
actuarial net gain or loss exceeds 10
percent of the
greater of the projected benefit obligation or the market-related value of plan
assets. If amortization is required, the excess is amortized over the average
remaining service period of participating employees expected to receive benefits
under the plan.
Postretirement benefits are
recognized in “salaries and benefits expense" on the consolidated statements of
income during the average remaining service period of participating employees
expected to receive benefits under the plan or the average remaining future
lifetime of retired participants currently receiving benefits under the
plan.
See Note 17 for further information
regarding the Corporation’s defined benefit pension and other postretirement
plans.
Income
Taxes
The provision for income taxes is
the sum of income taxes due for the current year and deferred taxes. Deferred
taxes arise from temporary differences between the income tax basis and
financial accounting basis of assets and liabilities. Deferred tax assets are
evaluated for realization based on available evidence of loss carry-back
capacity, future reversals of existing taxable temporary differences, and
assumptions made regarding future events. A valuation allowance is provided when
it is more likely than not that some portion of the deferred tax asset will not
be realized.
The Corporation classifies
interest and penalties on income tax liabilities in the “provision for income
taxes” on the consolidated statements of income.
Earnings Per
Share
Basic net income per common share
is calculated using the two-class method. The two-class method is an earnings
allocation formula that determines earnings per share for each share of common
stock and participating securities according to dividends declared (distributed
earnings) and participation rights in undistributed earnings. Distributed and
undistributed earnings are allocated between common and participating security
shareholders based on their respective rights to receive dividends. Nonvested
share-based payment awards that contain nonforfeitable rights to dividends or
dividend equivalents are considered participating securities (e.g., nonvested
restricted stock and service-based restricted stock units). Undistributed net
losses are not allocated to nonvested restricted shareholders, as these
shareholders do not have a contractual obligation to fund the losses incurred by
the Corporation. Net income attributable to common shares is then divided by the
weighted-average number of common shares outstanding during the
period.
Diluted net income per common
share is calculated using the more dilutive of either the treasury method or the
two-class method. The dilutive calculation considers common stock issuable under
the assumed exercise of stock options and performance-based restricted stock
units granted under the Corporation’s stock plans and warrants using the
treasury stock method, if dilutive.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
Net income attributable to common
shares is then divided by the total of weighted-average number of common shares
and common stock equivalents outstanding during the period.
Statements of
Cash Flows
Cash and cash equivalents are
defined as those amounts included in “cash and due from banks”, “federal funds
sold” and “interest-bearing deposits with banks” on the consolidated balance
sheets.
Comprehensive
Income (Loss)
The Corporation presents on an
annual basis the components of net income and other comprehensive income in two
separate, but consecutive statements and presents on an interim basis the
components of net income and a total for comprehensive income in one continuous
consolidated statement of comprehensive income.
Recently
Adopted Accounting Pronouncement
Effective January 1, 2014, the
Corporation early adopted Accounting Standards Update (ASU) No. 2014-01,
“Investments-Equity Method and Joint Ventures (Topic 323): Accounting for
Investments in Qualified Affordable Housing Projects,” an amendment to GAAP
which enables companies that invest in affordable housing projects that qualify
for the low-income housing tax credit (LIHTC) to elect to use the proportional
amortization method if certain conditions are met. Under the proportional
amortization method, the initial investment cost of the project is amortized in
proportion to the amount of tax credits and other benefits received, with the
results of the investment presented on a net basis as a component of the
provision for income taxes. Previously, LIHTC investments were accounted for
under the cost or equity method, and the amortization was recorded as a
reduction to other noninterest income, with the tax credits and other benefits
received recorded as a component of the provision for income taxes. The
Corporation believes the proportional amortization method more appropriately
represents the economics of LIHTC investments and provides users with a better
understanding of the returns from such investments than the cost or equity
method.
The cumulative effect of the
retrospective application of the change in amortization method was a
$3
million decrease to
both "accrued income and other assets" and "retained earnings" on the
consolidated balance sheets as of January 1, 2013. The consolidated financial
statements have been retrospectively adjusted to reflect the prior period effect
of the adoption of the amendment, which resulted in increases of $56 million
and $52
million to both
"other noninterest income" and "provision for income taxes" for the years ended
December 31, 2013 and 2012, respectively. The adoption of ASU 2014-01 had
no effect on net income or earnings
per common share for any period presented.
See Note 9 for additional information
regarding LIHTC and other tax credit investments.
Pending
Accounting Pronouncements
In January 2014, the FASB issued
ASU No. 2014-04, “Receivables – Troubled Debt Restructurings by Creditors
(Subtopic 310-40): Reclassification of Residential Real Estate Collateralized
Consumer Mortgage Loans upon Foreclosure,” (ASU 2014-04), which clarifies when
an in-substance foreclosure or repossession of residential real estate property
occurs, requiring a creditor to reclassify the loan to other real estate.
According to ASU 2014-04, a consumer mortgage loan should be reclassified to
other real estate either upon the creditor obtaining legal title to the real
estate collateral or when the borrower voluntarily conveys all interest in the
real estate property to the creditor through a deed in lieu of foreclosure or
similar legal agreement. ASU 2014-04 also clarifies that a creditor should not
delay reclassification when a borrower has a legal right of redemption. The
Corporation's current practice is to delay reclassification of foreclosed
residential real estate to other real estate until the redemption period, if
any, has expired. The Corporation expects to prospectively adopt ASU 2014-04 in
the first quarter 2015 and does not expect the adoption to have a material
effect on the Corporation's financial condition and results of operations.
In May 2014, the FASB issued ASU
No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” (ASU 2014-09),
which is intended to improve and converge the financial reporting requirements
for revenue contracts with customers. Previous GAAP comprised broad revenue
recognition concepts along with numerous industry-specific requirements. The
new guidance establishes a five-step model which entities must follow to
recognize revenue and removes inconsistencies and weaknesses in existing
guidance. ASU 2014-09 is effective for annual and interim periods beginning
after December 15, 2016, and must be retrospectively applied. Entities will
have the option of presenting prior periods as impacted by the new guidance or
presenting the cumulative effect of initial application along with supplementary
disclosures. Early adoption is prohibited. The Corporation is currently
evaluating the impact of adopting ASU 2014-09.
In June 2014, the FASB issued ASU
No. 2014-12, “Compensation-Stock Compensation (Topic 718): Accounting for
Share-Based Payments When the Terms of an Award Provide That a Performance
Target Could Be Achieved after the Requisite Service Period,” (ASU 2014-12). The
new guidance requires that a performance target that affects vesting and that
could be
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
achieved after the requisite
service period be treated as a performance condition. ASU 2014-12 is effective
for annual and interim periods beginning after December 15, 2015, with early
adoption permitted. The Corporation's current accounting treatment of
performance conditions for employees who are or become retirement eligible prior
to the achievement of the performance target are consistent with ASU 2014-12
and, as such, does not expect the new guidance to have a material effect on the
Corporation’s financial condition and results of operations. The Corporation
expects to prospectively adopt ASU 2014-12 in the first quarter
2015.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
NOTE
2 – FAIR VALUE
MEASUREMENTS
The Corporation utilizes fair
value measurements to record fair value adjustments to certain assets and
liabilities and to determine fair value disclosures. The determination of fair
values of financial instruments often requires the use of estimates. In cases
where quoted market values in an active market are not available, the
Corporation uses present value techniques and other valuation methods to
estimate the fair values of its financial instruments. These valuation methods
require considerable judgment and the resulting estimates of fair value can be
significantly affected by the assumptions made and methods used.
Trading securities, investment
securities available-for-sale, derivatives and deferred compensation plan
liabilities are recorded at fair value on a recurring basis. Additionally, from
time to time, the Corporation may be required to record other assets and
liabilities at fair value on a nonrecurring basis, such as impaired loans, other
real estate (primarily foreclosed property), nonmarketable equity securities and
certain other assets and liabilities. These nonrecurring fair value adjustments
typically involve write-downs of individual assets or application of lower of
cost or fair value accounting.
Refer to Note 1 for further
information about the fair value hierarchy, descriptions of the valuation
methodologies and key inputs used to measure financial assets and liabilities
recorded at fair value, as well as a description of the methods and significant
assumptions used to estimate fair value disclosures for financial instruments
not recorded at fair value in their entirety on a recurring basis.
ASSETS AND
LIABLILITIES RECORDED AT FAIR VALUE ON A RECURRING BASIS
The following tables present the
recorded amount of assets and liabilities measured at fair value on a recurring
basis as of December 31,
2014 and
2013.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
|
December 31,
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading
securities: |
|
|
|
|
|
|
|
|
|
Deferred
compensation plan assets |
$ |
94 |
|
|
$ |
94 |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
Investment
securities available-for-sale: |
|
|
|
|
|
|
|
|
|
U.S.
Treasury and other U.S. government agency securities |
526 |
|
|
526 |
|
|
— |
|
|
— |
|
|
|
Residential
mortgage-backed securities (a) |
7,274 |
|
|
— |
|
|
7,274 |
|
|
— |
|
|
|
State
and municipal securities |
23 |
|
|
— |
|
|
— |
|
|
23 |
|
(b) |
|
Corporate
debt securities |
51 |
|
|
— |
|
|
50 |
|
|
1 |
|
(b) |
|
Equity
and other non-debt securities |
242 |
|
|
130 |
|
|
— |
|
|
112 |
|
(b) |
|
Total
investment securities available-for-sale |
8,116 |
|
|
656 |
|
|
7,324 |
|
|
136 |
|
|
|
Derivative
assets: |
|
|
|
|
|
|
|
|
|
Interest
rate contracts |
328 |
|
|
— |
|
|
328 |
|
|
— |
|
|
|
Energy
derivative contracts |
527 |
|
|
— |
|
|
527 |
|
|
— |
|
|
|
Foreign
exchange contracts |
39 |
|
|
— |
|
|
39 |
|
|
— |
|
|
|
Warrants |
4 |
|
|
— |
|
|
— |
|
|
4 |
|
|
|
Total
derivative assets |
898 |
|
|
— |
|
|
894 |
|
|
4 |
|
|
|
Total
assets at fair value |
$ |
9,108 |
|
|
$ |
750 |
|
|
$ |
8,218 |
|
|
$ |
140 |
|
|
|
Derivative
liabilities: |
|
|
|
|
|
|
|
|
|
Interest
rate contracts |
$ |
102 |
|
|
$ |
— |
|
|
$ |
102 |
|
|
$ |
— |
|
|
|
Energy
derivative contracts |
525 |
|
|
— |
|
|
525 |
|
|
— |
|
|
|
Foreign
exchange contracts |
34 |
|
|
— |
|
|
34 |
|
|
— |
|
|
|
Other |
1 |
|
|
— |
|
|
— |
|
|
1 |
|
|
|
Total
derivative liabilities |
662 |
|
|
— |
|
|
661 |
|
|
1 |
|
|
|
Deferred
compensation plan liabilities |
94 |
|
|
94 |
|
|
— |
|
|
— |
|
|
|
Total
liabilities at fair value |
$ |
756 |
|
|
$ |
94 |
|
|
$ |
661 |
|
|
$ |
1 |
|
|
|
|
|
(a) |
Residential
mortgage-backed securities issued and/or guaranteed by U.S. government
agencies or U.S. government-sponsored
enterprises. |
|
|
|
(b) |
Auction-rate
securities. |
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
|
December 31,
2013 |
|
|
|
|
|
|
|
|
|
Trading
securities: |
|
|
|
|
|
|
|
|
|
Deferred
compensation plan assets |
$ |
96 |
|
|
$ |
96 |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
Equity
and other non-debt securities |
7 |
|
|
7 |
|
|
— |
|
|
— |
|
|
|
Residential
mortgage-backed securities (a) |
2 |
|
|
— |
|
|
2 |
|
|
— |
|
|
|
State
and municipal securities |
3 |
|
|
— |
|
|
3 |
|
|
— |
|
|
|
Total
trading securities |
108 |
|
|
103 |
|
|
5 |
|
|
— |
|
|
|
Investment
securities available-for-sale: |
|
|
|
|
|
|
|
|
|
U.S.
Treasury and other U.S. government agency securities |
45 |
|
|
45 |
|
|
— |
|
|
— |
|
|
|
Residential
mortgage-backed securities (a) |
8,926 |
|
|
— |
|
|
8,926 |
|
|
— |
|
|
|
State
and municipal securities |
22 |
|
|
— |
|
|
— |
|
|
22 |
|
(b) |
|
Corporate
debt securities |
56 |
|
|
— |
|
|
55 |
|
|
1 |
|
(b) |
|
Equity
and other non-debt securities |
258 |
|
|
122 |
|
|
— |
|
|
136 |
|
(b) |
|
Total
investment securities available-for-sale |
9,307 |
|
|
167 |
|
|
8,981 |
|
|
159 |
|
|
|
Derivative
assets: |
|
|
|
|
|
|
|
|
|
Interest
rate contracts |
380 |
|
|
— |
|
|
380 |
|
|
— |
|
|
|
Energy
derivative contracts |
105 |
|
|
— |
|
|
105 |
|
|
— |
|
|
|
Foreign
exchange contracts |
15 |
|
|
— |
|
|
15 |
|
|
— |
|
|
|
Warrants |
3 |
|
|
— |
|
|
— |
|
|
3 |
|
|
|
Total
derivative assets |
503 |
|
|
— |
|
|
500 |
|
|
3 |
|
|
|
Total
assets at fair value |
$ |
9,918 |
|
|
$ |
270 |
|
|
$ |
9,486 |
|
|
$ |
162 |
|
|
|
Derivative
liabilities: |
|
|
|
|
|
|
|
|
|
Interest
rate contracts |
$ |
133 |
|
|
$ |
— |
|
|
$ |
133 |
|
|
$ |
— |
|
|
|
Energy
derivative contracts |
102 |
|
|
— |
|
|
102 |
|
|
— |
|
|
|
Foreign
exchange contracts |
14 |
|
|
— |
|
|
14 |
|
|
— |
|
|
|
Other |
2 |
|
|
— |
|
|
— |
|
|
2 |
|
|
|
Total
derivative liabilities |
251 |
|
|
— |
|
|
249 |
|
|
2 |
|
|
|
Deferred
compensation plan liabilities |
96 |
|
|
96 |
|
|
— |
|
|
— |
|
|
|
Total
liabilities at fair value |
$ |
347 |
|
|
$ |
96 |
|
|
$ |
249 |
|
|
$ |
2 |
|
|
|
|
|
(a) |
Residential
mortgage-backed securities issued and/or guaranteed by U.S. government
agencies or U.S. government-sponsored
enterprises. |
|
|
|
(b) |
Auction-rate
securities. |
There were no transfers of assets or
liabilities recorded at fair value on a recurring basis into or out of Level 1,
Level 2 and Level 3 fair value measurements during the years
ended December 31, 2014
and 2013.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
The following table summarizes
the changes in Level 3 assets and liabilities measured at fair value on a
recurring basis for the years
ended December 31, 2014
and 2013.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Realized/Unrealized Gains (Losses) (Pretax) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at
Beginning
of
Period |
|
Recorded in Earnings |
Recorded
in
Other
Comprehensive
Income
(Loss) |
|
|
|
|
|
Balance
at
End of
Period |
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
Realized |
Unrealized |
|
Sales |
|
Settlements |
|
|
|
Year
Ended December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State
and municipal securities (a) |
$ |
22 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1 |
|
(b) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
23 |
|
|
Corporate
debt securities (a) |
1 |
|
|
— |
|
|
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
1 |
|
|
Equity
and other non-debt securities (a) |
136 |
|
|
2 |
|
(c) |
— |
|
|
7 |
|
(b) |
|
(33 |
) |
|
— |
|
|
112 |
|
|
Total investment securities
available-for-sale |
159 |
|
|
2 |
|
(c) |
— |
|
|
8 |
|
(b) |
|
(33 |
) |
|
— |
|
|
136 |
|
|
Derivative
assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants |
3 |
|
|
7 |
|
(d) |
1 |
|
(d) |
— |
|
|
|
(7 |
) |
|
— |
|
|
4 |
|
|
Derivative
liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
2 |
|
|
(1 |
) |
(c) |
— |
|
|
— |
|
|
|
— |
|
|
(2 |
) |
|
1 |
|
|
Year
Ended December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State
and municipal securities (a) |
$ |
23 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2 |
|
(b) |
|
$ |
(3 |
) |
|
$ |
— |
|
|
$ |
22 |
|
|
Corporate
debt securities (a) |
1 |
|
|
— |
|
|
— |
|
|
— |
|
|
|
— |
|
|
— |
|
|
1 |
|
|
Equity
and other non-debt securities (a) |
156 |
|
|
1 |
|
(c) |
— |
|
|
(1 |
) |
(b) |
|
(20 |
) |
|
— |
|
|
136 |
|
|
Total investment securities
available-for-sale |
180 |
|
|
1 |
|
(c) |
— |
|
|
1 |
|
(b) |
|
(23 |
) |
|
— |
|
|
159 |
|
|
Derivative
assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants |
3 |
|
|
9 |
|
(d) |
1 |
|
(d) |
— |
|
|
|
(4 |
) |
|
(6 |
) |
|
3 |
|
|
Derivative
liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
1 |
|
|
— |
|
|
(2 |
) |
(c) |
— |
|
|
|
— |
|
|
(1 |
) |
|
2 |
|
|
|
|
(a) |
Auction-rate
securities. |
|
|
|
(b) |
Recorded
in "net unrealized gains (losses) on investment securities
available-for-sale" in other comprehensive
income. |
|
|
|
(c) |
Realized
and unrealized gains and losses due to changes in fair value recorded in
"net securities gains (losses)" on the consolidated statements of
income. |
|
|
|
(d) |
Realized
and unrealized gains and losses due to changes in fair value recorded in
"other noninterest income" on the consolidated statements of
income. |
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
ASSETS AND
LIABILITIES RECORDED AT FAIR VALUE ON A NONRECURRING BASIS
The Corporation may be required,
from time to time, to record certain assets and liabilities at fair value on a
nonrecurring basis. These include assets that are recorded at the lower of cost
or fair value, and were recognized at fair value since it was less than cost at
the end of the period. All assets recorded at fair value on a nonrecurring basis
were classified as Level 3 at December 31,
2014 and
2013 and are presented in the
following table. No liabilities were recorded at
fair value on a nonrecurring basis at December 31,
2014 and
2013.
|
|
|
|
|
|
|
(in
millions) |
|
Level 3 |
|
December 31,
2014 |
|
|
|
Loans: |
|
|
|
Commercial |
|
$ |
38 |
|
|
Commercial
mortgage |
|
26 |
|
|
Total
loans |
|
64 |
|
|
Nonmarketable
equity securities (a) |
|
2 |
|
|
Other
real estate |
|
2 |
|
|
Total
assets at fair value |
|
$ |
68 |
|
|
December 31,
2013 |
|
|
|
Loans: |
|
|
|
Commercial |
|
$ |
43 |
|
|
Real
estate construction |
|
20 |
|
|
Commercial
mortgage |
|
61 |
|
|
International |
|
4 |
|
|
Total
loans |
|
128 |
|
|
Nonmarketable
equity securities (a) |
|
2 |
|
|
Other
real estate |
|
5 |
|
|
Total
assets at fair value |
|
$ |
135 |
|
|
|
|
(a) |
Commitments
to fund additional investments in nonmarketable equity securities recorded
at fair value on a nonrecurring basis were insignificant at
December 31,
2014
and 2013. |
Level 3 assets recorded at fair
value on a nonrecurring basis at December 31,
2014 and
2013 included loans for which a
specific allowance was established based on the fair value of collateral and
other real estate for which fair value of the properties was less than the cost
basis. For both asset classes, the unobservable inputs were the additional
adjustments applied by management to the appraised values to reflect such
factors as non-current appraisals and revisions to estimated time to sell. These
adjustments are determined based on qualitative judgments made by management on
a case-by-case basis and are not quantifiable inputs, although they are used in
the determination of fair value.
The following table presents
quantitative information related to the significant unobservable inputs utilized
in the Corporation's Level 3 recurring fair value measurement as of December 31,
2014 and
December 31,
2013. The
Corporation's Level 3 recurring fair value measurements include auction-rate
securities where fair value is determined using an income approach based on a
discounted cash flow model. The inputs in the table below reflect management's
expectation of continued illiquidity in the secondary auction-rate securities
market due to a lack of market activity for the issuers remaining in the
portfolio, a lack of market incentives for issuer redemptions, and the
expectation for a continuing low interest rate environment.
|
|
|
|
|
|
|
|
|
|
|
|
|
Discounted
Cash Flow Model |
|
|
|
|
Unobservable
Input |
|
|
Fair
Value
(in
millions) |
|
Discount
Rate |
|
Workout
Period (in
years) |
|
December 31,
2014 |
|
|
|
|
|
|
State
and municipal securities (a) |
$ |
23 |
|
|
3%
- 9% |
|
1
- 3 |
|
Equity
and other non-debt securities (a) |
112 |
|
|
4%
- 8% |
|
1
- 2 |
|
December 31,
2013 |
|
|
|
|
|
|
State
and municipal securities (a) |
$ |
22 |
|
|
5%
- 10% |
|
3
- 4 |
|
Equity
and other non-debt securities (a) |
136 |
|
|
5%
- 8% |
|
2
- 3 |
|
|
|
(a) |
Auction-rate
securities. |
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
ESTIMATED FAIR
VALUES OF FINANCIAL INSTRUMENTS NOT RECORDED AT FAIR VALUE ON A RECURRING
BASIS
The Corporation typically holds
the majority of its financial instruments until maturity and thus does not
expect to realize many of the estimated fair value amounts disclosed. The
disclosures also do not include estimated fair value amounts for items that are
not defined as financial instruments, but which have significant value. These
include such items as core deposit intangibles, the future earnings potential of
significant customer relationships and the value of trust operations and other
fee generating businesses. The Corporation believes the imprecision of an
estimate could be significant.
The carrying amount and estimated
fair value of financial instruments not recorded at fair value in their entirety
on a recurring basis on the Corporation’s consolidated balance sheets are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
Amount |
|
Estimated
Fair Value |
|
(in
millions) |
|
Total |
|
Level
1 |
|
Level
2 |
|
Level
3 |
|
December 31,
2014 |
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks |
$ |
1,026 |
|
|
$ |
1,026 |
|
|
$ |
1,026 |
|
|
$ |
— |
|
|
$ |
— |
|
|
Interest-bearing
deposits with banks |
5,045 |
|
|
5,045 |
|
|
5,045 |
|
|
— |
|
|
— |
|
|
Investment
securities held-to-maturity |
1,935 |
|
|
1,933 |
|
|
— |
|
|
1,933 |
|
|
— |
|
|
Loans
held-for-sale |
5 |
|
|
5 |
|
|
— |
|
|
5 |
|
|
— |
|
|
Total
loans, net of allowance for loan losses (a) |
47,999 |
|
|
47,932 |
|
|
— |
|
|
— |
|
|
47,932 |
|
|
Customers’
liability on acceptances outstanding |
10 |
|
|
10 |
|
|
10 |
|
|
— |
|
|
— |
|
|
Nonmarketable
equity securities (b) |
11 |
|
|
18 |
|
|
— |
|
|
— |
|
|
18 |
|
|
Restricted
equity investments |
92 |
|
|
92 |
|
|
92 |
|
|
— |
|
|
— |
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
Demand
deposits (noninterest-bearing) |
27,224 |
|
|
27,224 |
|
|
— |
|
|
27,224 |
|
|
— |
|
|
Interest-bearing
deposits |
25,841 |
|
|
25,841 |
|
|
— |
|
|
25,841 |
|
|
— |
|
|
Customer
certificates of deposit |
4,421 |
|
|
4,411 |
|
|
— |
|
|
4,411 |
|
|
— |
|
|
Total
deposits |
57,486 |
|
|
57,476 |
|
|
— |
|
|
57,476 |
|
|
— |
|
|
Short-term
borrowings |
116 |
|
|
116 |
|
|
116 |
|
|
— |
|
|
— |
|
|
Acceptances
outstanding |
10 |
|
|
10 |
|
|
10 |
|
|
— |
|
|
— |
|
|
Medium-
and long-term debt |
2,679 |
|
|
2,681 |
|
|
— |
|
|
2,681 |
|
|
— |
|
|
Credit-related
financial instruments |
(85 |
) |
|
(85 |
) |
|
— |
|
|
— |
|
|
(85 |
) |
|
December 31,
2013 |
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks |
$ |
1,140 |
|
|
$ |
1,140 |
|
|
$ |
1,140 |
|
|
$ |
— |
|
|
$ |
— |
|
|
Interest-bearing
deposits with banks |
5,311 |
|
|
5,311 |
|
|
5,311 |
|
|
— |
|
|
— |
|
|
Loans
held-for-sale |
4 |
|
|
4 |
|
|
— |
|
|
4 |
|
|
— |
|
|
Total
loans, net of allowance for loan losses (a) |
44,872 |
|
|
44,801 |
|
|
— |
|
|
— |
|
|
44,801 |
|
|
Customers’
liability on acceptances outstanding |
11 |
|
|
11 |
|
|
11 |
|
|
— |
|
|
— |
|
|
Nonmarketable
equity securities (b) |
12 |
|
|
19 |
|
|
— |
|
|
— |
|
|
19 |
|
|
Restricted
equity investments |
133 |
|
|
133 |
|
|
133 |
|
|
— |
|
|
— |
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
Demand
deposits (noninterest-bearing) |
23,875 |
|
|
23,875 |
|
|
— |
|
|
23,875 |
|
|
— |
|
|
Interest-bearing
deposits |
24,354 |
|
|
24,354 |
|
|
— |
|
|
24,354 |
|
|
— |
|
|
Customer
certificates of deposit |
5,063 |
|
|
5,055 |
|
|
— |
|
|
5,055 |
|
|
— |
|
|
Total
deposits |
53,292 |
|
|
53,284 |
|
|
— |
|
|
53,284 |
|
|
— |
|
|
Short-term
borrowings |
253 |
|
|
253 |
|
|
253 |
|
|
— |
|
|
— |
|
|
Acceptances
outstanding |
11 |
|
|
11 |
|
|
11 |
|
|
— |
|
|
— |
|
|
Medium-
and long-term debt |
3,543 |
|
|
3,540 |
|
|
— |
|
|
3,540 |
|
|
— |
|
|
Credit-related
financial instruments |
(88 |
) |
|
(88 |
) |
|
— |
|
|
— |
|
|
(88 |
) |
|
|
|
(a) |
Included
$64
million
and $128
million
of impaired loans recorded at fair value on a nonrecurring basis at
December 31,
2014
and 2013,
respectively. |
|
|
|
(b) |
Included
$2
million
of nonmarketable equity securities recorded at fair value on a
nonrecurring basis at both December 31,
2014
and 2013. |
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
NOTE
3 - INVESTMENT
SECURITIES
A summary of the Corporation’s
investment securities follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
Amortized
Cost |
|
Gross
Unrealized
Gains |
|
Gross
Unrealized
Losses |
|
Fair Value |
|
December 31,
2014 |
|
|
|
|
|
|
|
|
Investment
securities available-for-sale: |
|
|
|
|
|
|
|
|
U.S.
Treasury and other U.S. government agency securities |
$ |
526 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
526 |
|
|
Residential
mortgage-backed securities (a) |
7,192 |
|
|
122 |
|
|
40 |
|
|
7,274 |
|
|
State
and municipal securities |
24 |
|
|
— |
|
|
1 |
|
|
23 |
|
|
Corporate
debt securities |
51 |
|
|
— |
|
|
— |
|
|
51 |
|
|
Equity
and other non-debt securities |
242 |
|
|
1 |
|
|
1 |
|
|
242 |
|
|
Total
investment securities available-for-sale (b) |
$ |
8,035 |
|
|
$ |
123 |
|
|
$ |
42 |
|
|
$ |
8,116 |
|
|
|
|
|
|
|
|
|
|
|
Investment
securities held-to-maturity (c): |
|
|
|
|
|
|
|
|
Residential
mortgage-backed securities (a) |
$ |
1,935 |
|
|
$ |
— |
|
|
$ |
2 |
|
|
$ |
1,933 |
|
|
|
|
|
|
|
|
|
|
|
December 31,
2013 |
|
|
|
|
|
|
|
|
Investment
securities available-for-sale: |
|
|
|
|
|
|
|
|
U.S.
Treasury and other U.S. government agency securities |
$ |
45 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
45 |
|
|
Residential
mortgage-backed securities (a) |
9,023 |
|
|
91 |
|
|
188 |
|
|
8,926 |
|
|
State
and municipal securities |
24 |
|
|
— |
|
|
2 |
|
|
22 |
|
|
Corporate
debt securities |
56 |
|
|
— |
|
|
— |
|
|
56 |
|
|
Equity
and other non-debt securities |
266 |
|
|
1 |
|
|
9 |
|
|
258 |
|
|
Total
investment securities available-for-sale (b) |
$ |
9,414 |
|
|
$ |
92 |
|
|
$ |
199 |
|
|
$ |
9,307 |
|
|
|
|
(a) |
Residential
mortgage-backed securities issued and/or guaranteed by U.S. government
agencies or U.S. government-sponsored
enterprises. |
|
|
|
(b) |
Included
auction-rate securities at amortized cost and fair value of $137
million
and $136
million,
respectively, as of December 31,
2014
and $169
million
and $159
million,
respectively, as of December 31,
2013. |
|
|
|
(c) |
Investment
securities transferred from available-for-sale are reclassified at fair
value at the time of transfer. The amortized cost of investment securities
held-to-maturity included gross unrealized gains of $9
million
and gross unrealized losses of $32
million
at December 31, 2014 related to securities transferred, which are included
in accumulated other comprehensive loss. |
During the fourth quarter 2014,
the Corporation transferred residential mortgage-backed securities with a fair
value of approximately $2.0
billion from
available-for-sale to held-to-maturity. Accumulated other comprehensive loss
included pretax net unrealized losses of $23
million at the date
of transfer.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
A summary of the Corporation’s
investment securities in an unrealized loss position as of December 31,
2014 and
2013 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Temporarily
Impaired |
|
|
Less than 12 Months |
|
12 Months or more |
|
Total |
|
(in
millions) |
Fair
Value |
|
Unrealized
Losses |
|
Fair
Value |
|
Unrealized
Losses |
|
Fair
Value |
|
Unrealized
Losses |
|
December 31,
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and other
U.S. government agency securities |
$ |
298 |
|
|
$ |
— |
|
(a) |
|
$ |
— |
|
|
$ |
— |
|
|
|
$ |
298 |
|
|
$ |
— |
|
(a) |
|
Residential
mortgage-backed securities (b) |
626 |
|
|
3 |
|
|
|
3,112 |
|
|
71 |
|
|
|
3,738 |
|
|
74 |
|
|
|
State
and municipal securities (c) |
— |
|
|
— |
|
|
|
22 |
|
|
1 |
|
|
|
22 |
|
|
1 |
|
|
|
Corporate
debt securities (c) |
— |
|
|
— |
|
|
|
1 |
|
|
— |
|
(a) |
|
1 |
|
|
— |
|
(a) |
|
Equity
and other non-debt securities (c) |
— |
|
|
— |
|
|
|
112 |
|
|
1 |
|
|
|
112 |
|
|
1 |
|
|
|
Total
impaired securities |
$ |
924 |
|
|
$ |
3 |
|
|
|
$ |
3,247 |
|
|
$ |
73 |
|
|
|
$ |
4,171 |
|
|
$ |
76 |
|
|
|
December 31,
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgage-backed securities (b) |
$ |
5,825 |
|
|
$ |
187 |
|
|
|
$ |
11 |
|
|
$ |
1 |
|
|
|
$ |
5,836 |
|
|
$ |
188 |
|
|
|
State
and municipal securities (c) |
— |
|
|
— |
|
|
|
22 |
|
|
2 |
|
|
|
22 |
|
|
2 |
|
|
|
Corporate
debt securities (c) |
— |
|
|
— |
|
|
|
1 |
|
|
— |
|
(a) |
|
1 |
|
|
— |
|
(a) |
|
Equity
and other non-debt securities (c) |
— |
|
|
— |
|
|
|
148 |
|
|
9 |
|
|
|
148 |
|
|
9 |
|
|
|
Total
impaired securities |
$ |
5,825 |
|
|
$ |
187 |
|
|
|
$ |
182 |
|
|
$ |
12 |
|
|
|
$ |
6,007 |
|
|
$ |
199 |
|
|
|
|
|
(a) |
Unrealized
losses less than $0.5 million. |
|
|
|
(b) |
Residential
mortgage-backed securities issued and/or guaranteed by U.S. government
agencies or U.S. government-sponsored
enterprises. |
|
|
|
(c) |
Primarily
auction-rate securities. |
At December 31,
2014, the
Corporation had 142
securities in an unrealized loss position with no credit impairment, including
80 residential mortgage-backed
securities, 43
equity and other non-debt auction-rate preferred securities, 17 state and municipal auction-rate
securities, one
corporate auction-rate debt security and one U.S. Treasury security. As of
December 31,
2014, approximately
89
percent of the
aggregate par value of auction-rate securities have been redeemed or sold since
acquisition, of which approximately 95
percent were
redeemed at or above cost. The unrealized losses for these securities resulted
from changes in market interest rates and liquidity. The Corporation ultimately
expects full collection of the carrying amount of these securities, does not
intend to sell the securities in an unrealized loss position, and it is not
more-likely-than-not that the Corporation will be required to sell the
securities in an unrealized loss position prior to recovery of amortized cost.
The Corporation does not consider these securities to be other-than-temporarily
impaired at December 31,
2014.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
Sales, calls and write-downs of
investment securities available-for-sale resulted in the following gains and
losses recorded in “net securities gains (losses)” on the consolidated
statements of income, computed based on the adjusted cost of the specific
security.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
|
|
|
|
|
Years
Ended December 31 |
2014 |
|
2013 |
|
2012 |
|
Securities
gains |
$ |
2 |
|
|
$ |
1 |
|
|
$ |
14 |
|
|
Securities
losses (a) |
(2 |
) |
|
(2 |
) |
|
(2 |
) |
|
Net
securities (losses) gains |
$ |
— |
|
|
$ |
(1 |
) |
|
$ |
12 |
|
|
|
|
(a) |
Primarily
charges related to a derivative contract tied to the conversion rate of
Visa Class B shares. |
The following table summarizes
the amortized cost and fair values of debt securities by contractual maturity.
Securities with multiple maturity dates are classified in the period of final
maturity. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
Available-for-sale |
Held-to-maturity |
|
December 31,
2014 |
Amortized
Cost |
|
Fair
Value |
Amortized
Cost |
|
Fair
Value |
|
Contractual
maturity |
|
|
|
|
|
|
|
Within
one year |
$ |
134 |
|
|
$ |
134 |
|
$ |
— |
|
|
$ |
— |
|
|
After
one year through five years |
786 |
|
|
787 |
|
— |
|
|
— |
|
|
After
five years through ten years |
711 |
|
|
748 |
|
— |
|
|
— |
|
|
After
ten years |
6,162 |
|
|
6,205 |
|
1,935 |
|
|
1,933 |
|
|
Subtotal |
7,793 |
|
|
7,874 |
|
1,935 |
|
|
1,933 |
|
|
Equity
and other non-debt securities |
242 |
|
|
242 |
|
— |
|
|
— |
|
|
Total
investment securities |
$ |
8,035 |
|
|
$ |
8,116 |
|
$ |
1,935 |
|
|
$ |
1,933 |
|
Included in the contractual
maturity distribution in the table above were residential mortgage-backed
securities available-for-sale with a total amortized cost and fair value of
$7.2
billion and
$7.3
billion,
respectively, and residential mortgage-backed securities held-to-maturity with a
total amortized cost and fair value of $1.9
billion. The actual
cash flows of mortgage-backed securities may differ from contractual maturity as
the borrowers of the underlying loans may exercise prepayment
options.
At December 31,
2014, investment
securities with a carrying value of $2.9
billion were pledged
where permitted or required by law to secure $1.9
billion of
liabilities, primarily public and other deposits of state and local government
agencies and derivative instruments.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
NOTE
4 – CREDIT
QUALITY AND ALLOWANCE FOR CREDIT LOSSES
The following table presents an
aging analysis of the recorded balance of loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Past Due and Still Accruing |
|
|
|
|
|
|
|
|
(in
millions) |
30-59
Days |
|
60-89
Days |
|
90 Days
or More |
|
Total |
|
Nonaccrual
Loans |
|
Current
Loans |
|
Total
Loans |
|
December 31,
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
$ |
58 |
|
|
$ |
13 |
|
|
$ |
1 |
|
|
$ |
72 |
|
|
$ |
109 |
|
|
$ |
31,339 |
|
|
|
$ |
31,520 |
|
|
Real
estate construction: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
business line (a) |
3 |
|
|
— |
|
|
— |
|
|
3 |
|
|
1 |
|
|
1,602 |
|
|
|
1,606 |
|
|
Other
business lines (b) |
12 |
|
|
— |
|
|
— |
|
|
12 |
|
|
1 |
|
|
336 |
|
|
|
349 |
|
|
Total
real estate construction |
15 |
|
|
— |
|
|
— |
|
|
15 |
|
|
2 |
|
|
1,938 |
|
|
|
1,955 |
|
|
Commercial
mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
business line (a) |
8 |
|
|
1 |
|
|
1 |
|
|
10 |
|
|
22 |
|
|
1,758 |
|
|
|
1,790 |
|
|
Other
business lines (b) |
16 |
|
|
12 |
|
|
2 |
|
|
30 |
|
|
73 |
|
|
6,711 |
|
|
|
6,814 |
|
|
Total
commercial mortgage |
24 |
|
|
13 |
|
|
3 |
|
|
40 |
|
|
95 |
|
|
8,469 |
|
|
|
8,604 |
|
|
Lease
financing |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
805 |
|
|
|
805 |
|
|
International |
9 |
|
|
— |
|
|
— |
|
|
9 |
|
|
— |
|
|
1,487 |
|
|
|
1,496 |
|
|
Total
business loans |
106 |
|
|
26 |
|
|
4 |
|
|
136 |
|
|
206 |
|
|
44,038 |
|
|
|
44,380 |
|
|
Retail
loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgage |
9 |
|
|
2 |
|
|
— |
|
|
11 |
|
|
36 |
|
|
1,784 |
|
(c) |
|
1,831 |
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home
equity |
5 |
|
|
3 |
|
|
— |
|
|
8 |
|
|
30 |
|
|
1,620 |
|
|
|
1,658 |
|
|
Other
consumer |
12 |
|
|
— |
|
|
1 |
|
|
13 |
|
|
1 |
|
|
710 |
|
|
|
724 |
|
|
Total
consumer |
17 |
|
|
3 |
|
|
1 |
|
|
21 |
|
|
31 |
|
|
2,330 |
|
|
|
2,382 |
|
|
Total
retail loans |
26 |
|
|
5 |
|
|
1 |
|
|
32 |
|
|
67 |
|
|
4,114 |
|
|
|
4,213 |
|
|
Total
loans |
$ |
132 |
|
|
$ |
31 |
|
|
$ |
5 |
|
|
$ |
168 |
|
|
$ |
273 |
|
|
$ |
48,152 |
|
(c) |
|
$ |
48,593 |
|
|
December 31,
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
$ |
36 |
|
|
$ |
17 |
|
|
$ |
4 |
|
|
$ |
57 |
|
|
$ |
81 |
|
|
$ |
28,677 |
|
|
|
$ |
28,815 |
|
|
Real
estate construction: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
business line (a) |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
20 |
|
|
1,427 |
|
|
|
1,447 |
|
|
Other
business lines (b) |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1 |
|
|
314 |
|
|
|
315 |
|
|
Total
real estate construction |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
21 |
|
|
1,741 |
|
|
|
1,762 |
|
|
Commercial
mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
business line (a) |
9 |
|
|
1 |
|
|
— |
|
|
10 |
|
|
51 |
|
|
1,617 |
|
|
|
1,678 |
|
|
Other
business lines (b) |
27 |
|
|
6 |
|
|
4 |
|
|
37 |
|
|
105 |
|
|
6,967 |
|
|
|
7,109 |
|
|
Total
commercial mortgage |
36 |
|
|
7 |
|
|
4 |
|
|
47 |
|
|
156 |
|
|
8,584 |
|
|
|
8,787 |
|
|
Lease
financing |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
845 |
|
|
|
845 |
|
|
International |
— |
|
|
— |
|
|
3 |
|
|
3 |
|
|
4 |
|
|
1,320 |
|
|
|
1,327 |
|
|
Total
business loans |
72 |
|
|
24 |
|
|
11 |
|
|
107 |
|
|
262 |
|
|
41,167 |
|
|
|
41,536 |
|
|
Retail
loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgage |
15 |
|
|
3 |
|
|
— |
|
|
18 |
|
|
53 |
|
|
1,626 |
|
(c) |
|
1,697 |
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home
equity |
6 |
|
|
2 |
|
|
— |
|
|
8 |
|
|
33 |
|
|
1,476 |
|
|
|
1,517 |
|
|
Other
consumer |
4 |
|
|
1 |
|
|
5 |
|
|
10 |
|
|
2 |
|
|
708 |
|
|
|
720 |
|
|
Total
consumer |
10 |
|
|
3 |
|
|
5 |
|
|
18 |
|
|
35 |
|
|
2,184 |
|
|
|
2,237 |
|
|
Total
retail loans |
25 |
|
|
6 |
|
|
5 |
|
|
36 |
|
|
88 |
|
|
3,810 |
|
|
|
3,934 |
|
|
Total
loans |
$ |
97 |
|
|
$ |
30 |
|
|
$ |
16 |
|
|
$ |
143 |
|
|
$ |
350 |
|
|
$ |
44,977 |
|
(c) |
|
$ |
45,470 |
|
|
|
|
(a) |
Primarily
loans to real estate developers. |
|
|
|
(b) |
Primarily
loans secured by owner-occupied real
estate. |
|
|
|
(c) |
Included
purchased credit-impaired (PCI) loans with a total carrying value of
$2
million
and $5
million
at December 31,
2014
and 2013,
respectively. |
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
The following table presents
loans by credit quality indicator, based on internal risk ratings assigned to
each business loan at the time of approval and subjected to subsequent reviews,
generally at least annually, and to pools of retail loans with similar risk
characteristics.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internally
Assigned Rating |
|
|
|
(in
millions) |
Pass (a) |
|
Special
Mention (b) |
|
Substandard (c) |
|
Nonaccrual (d) |
|
Total |
|
December 31,
2014 |
|
|
|
|
|
|
|
|
|
|
Business
loans: |
|
|
|
|
|
|
|
|
|
|
Commercial |
$ |
30,310 |
|
|
$ |
560 |
|
|
$ |
541 |
|
|
$ |
109 |
|
|
$ |
31,520 |
|
|
Real
estate construction: |
|
|
|
|
|
|
|
|
|
|
Commercial
Real Estate business line (e) |
1,594 |
|
|
11 |
|
|
— |
|
|
1 |
|
|
1,606 |
|
|
Other
business lines (f) |
336 |
|
|
7 |
|
|
5 |
|
|
1 |
|
|
349 |
|
|
Total
real estate construction |
1,930 |
|
|
18 |
|
|
5 |
|
|
2 |
|
|
1,955 |
|
|
Commercial
mortgage: |
|
|
|
|
|
|
|
|
|
|
Commercial
Real Estate business line (e) |
1,652 |
|
|
69 |
|
|
47 |
|
|
22 |
|
|
1,790 |
|
|
Other
business lines (f) |
6,434 |
|
|
138 |
|
|
169 |
|
|
73 |
|
|
6,814 |
|
|
Total
commercial mortgage |
8,086 |
|
|
207 |
|
|
216 |
|
|
95 |
|
|
8,604 |
|
|
Lease
financing |
778 |
|
|
26 |
|
|
1 |
|
|
— |
|
|
805 |
|
|
International |
1,468 |
|
|
15 |
|
|
13 |
|
|
— |
|
|
1,496 |
|
|
Total
business loans |
42,572 |
|
|
826 |
|
|
776 |
|
|
206 |
|
|
44,380 |
|
|
Retail
loans: |
|
|
|
|
|
|
|
|
|
|
Residential
mortgage |
1,790 |
|
|
2 |
|
|
3 |
|
|
36 |
|
|
1,831 |
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
Home
equity |
1,620 |
|
|
— |
|
|
8 |
|
|
30 |
|
|
1,658 |
|
|
Other
consumer |
718 |
|
|
3 |
|
|
2 |
|
|
1 |
|
|
724 |
|
|
Total
consumer |
2,338 |
|
|
3 |
|
|
10 |
|
|
31 |
|
|
2,382 |
|
|
Total
retail loans |
4,128 |
|
|
5 |
|
|
13 |
|
|
67 |
|
|
4,213 |
|
|
Total
loans |
$ |
46,700 |
|
|
$ |
831 |
|
|
$ |
789 |
|
|
$ |
273 |
|
|
$ |
48,593 |
|
|
December 31,
2013 |
|
|
|
|
|
|
|
|
|
|
Business
loans: |
|
|
|
|
|
|
|
|
|
|
Commercial |
$ |
27,470 |
|
|
$ |
590 |
|
|
$ |
674 |
|
|
$ |
81 |
|
|
$ |
28,815 |
|
|
Real
estate construction: |
|
|
|
|
|
|
|
|
|
|
Commercial
Real Estate business line (e) |
1,399 |
|
|
13 |
|
|
15 |
|
|
20 |
|
|
1,447 |
|
|
Other
business lines (f) |
314 |
|
|
— |
|
|
— |
|
|
1 |
|
|
315 |
|
|
Total
real estate construction |
1,713 |
|
|
13 |
|
|
15 |
|
|
21 |
|
|
1,762 |
|
|
Commercial
mortgage: |
|
|
|
|
|
|
|
|
|
|
Commercial
Real Estate business line (e) |
1,474 |
|
|
92 |
|
|
61 |
|
|
51 |
|
|
1,678 |
|
|
Other
business lines (f) |
6,596 |
|
|
145 |
|
|
263 |
|
|
105 |
|
|
7,109 |
|
|
Total
commercial mortgage |
8,070 |
|
|
237 |
|
|
324 |
|
|
156 |
|
|
8,787 |
|
|
Lease
financing |
841 |
|
|
3 |
|
|
1 |
|
|
— |
|
|
845 |
|
|
International |
1,298 |
|
|
7 |
|
|
18 |
|
|
4 |
|
|
1,327 |
|
|
Total
business loans |
39,392 |
|
|
850 |
|
|
1,032 |
|
|
262 |
|
|
41,536 |
|
|
Retail
loans: |
|
|
|
|
|
|
|
|
|
|
Residential
mortgage |
1,635 |
|
|
3 |
|
|
6 |
|
|
53 |
|
|
1,697 |
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
Home
equity |
1,475 |
|
|
4 |
|
|
5 |
|
|
33 |
|
|
1,517 |
|
|
Other
consumer |
708 |
|
|
3 |
|
|
7 |
|
|
2 |
|
|
720 |
|
|
Total
consumer |
2,183 |
|
|
7 |
|
|
12 |
|
|
35 |
|
|
2,237 |
|
|
Total
retail loans |
3,818 |
|
|
10 |
|
|
18 |
|
|
88 |
|
|
3,934 |
|
|
Total
loans |
$ |
43,210 |
|
|
$ |
860 |
|
|
$ |
1,050 |
|
|
$ |
350 |
|
|
$ |
45,470 |
|
|
|
|
(a) |
Includes
all loans not included in the categories of special mention, substandard
or nonaccrual. |
|
|
|
(b) |
Special
mention loans are accruing loans that have potential credit weaknesses
that deserve management’s close attention, such as loans to borrowers who
may be experiencing financial difficulties that may result in
deterioration of repayment prospects from the borrower at some future
date. This category is generally consistent with the "special mention"
category as defined by regulatory
authorities. |
|
|
|
(c) |
Substandard
loans are accruing loans that have a well-defined weakness, or weaknesses,
such as loans to borrowers who may be experiencing losses from operations
or inadequate liquidity of a degree and duration that jeopardizes the
orderly repayment of the loan. Substandard loans also are distinguished
by the distinct possibility of loss in the future if these weaknesses are
not corrected. PCI loans are included in the substandard category. This
category is generally consistent with the "substandard" category as
defined by regulatory authorities. |
|
|
|
(d) |
Nonaccrual
loans are loans for which the accrual of interest has been discontinued.
For further information regarding nonaccrual loans, refer to the
Nonperforming Assets subheading in Note 1 - Basis of Presentation and
Accounting Policies. A significant majority of nonaccrual loans are
generally consistent with the "substandard" category and the remainder are
generally consistent with the "doubtful" category as defined by regulatory
authorities. |
|
|
|
(e) |
Primarily
loans to real estate developers. |
|
|
|
(f) |
Primarily
loans secured by owner-occupied real
estate. |
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
The following table summarizes
nonperforming assets.
|
|
|
|
|
|
|
|
|
|
(in
millions) |
December 31,
2014 |
|
December 31,
2013 |
|
Nonaccrual
loans |
$ |
273 |
|
|
$ |
350 |
|
|
Reduced-rate
loans (a) |
17 |
|
|
24 |
|
|
Total
nonperforming loans |
290 |
|
|
374 |
|
|
Foreclosed
property |
10 |
|
|
9 |
|
|
Total
nonperforming assets |
$ |
300 |
|
|
$ |
383 |
|
|
|
|
(a) |
There
were no reduced-rate business loans at December 31,
2014
and $4
million
at December 31,
2013.
Reduced-rate retail loans totaled $17
million
and $20
million
at December 31,
2014
and 2013,
respectively. |
Allowance for
Credit Losses
The following table details the
changes in the allowance for loan losses and related loan amounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
2013 |
|
2012 |
|
(in
millions) |
Business
Loans |
Retail
Loans |
|
Total |
|
Business
Loans |
Retail
Loans |
|
Total |
|
Business
Loans |
Retail
Loans |
|
Total |
|
Years
Ended December 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of period |
$ |
531 |
|
$ |
67 |
|
|
$ |
598 |
|
|
$ |
552 |
|
$ |
77 |
|
|
$ |
629 |
|
|
$ |
648 |
|
$ |
78 |
|
|
$ |
726 |
|
|
Loan
charge-offs |
(87 |
) |
(15 |
) |
|
(102 |
) |
|
(130 |
) |
(23 |
) |
|
(153 |
) |
|
(212 |
) |
(33 |
) |
|
(245 |
) |
|
Recoveries on loans
previously charged-off |
68 |
|
9 |
|
|
77 |
|
|
70 |
|
10 |
|
|
80 |
|
|
65 |
|
10 |
|
|
75 |
|
|
Net
loan charge-offs |
(19 |
) |
(6 |
) |
|
(25 |
) |
|
(60 |
) |
(13 |
) |
|
(73 |
) |
|
(147 |
) |
(23 |
) |
|
(170 |
) |
|
Provision
for loan losses |
23 |
|
(1 |
) |
|
22 |
|
|
39 |
|
3 |
|
|
42 |
|
|
51 |
|
22 |
|
|
73 |
|
|
Foreign currency translation
adjustment |
(1 |
) |
— |
|
|
(1 |
) |
|
— |
|
— |
|
|
— |
|
|
— |
|
— |
|
|
— |
|
|
Balance
at end of period |
$ |
534 |
|
$ |
60 |
|
|
$ |
594 |
|
|
$ |
531 |
|
$ |
67 |
|
|
$ |
598 |
|
|
$ |
552 |
|
$ |
77 |
|
|
$ |
629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
a percentage of total loans |
1.20 |
% |
1.43 |
% |
|
1.22 |
% |
|
1.28 |
% |
1.70 |
% |
|
1.32 |
% |
|
1.30 |
% |
2.10 |
% |
|
1.37 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for
impairment |
$ |
39 |
|
$ |
— |
|
|
$ |
39 |
|
|
$ |
57 |
|
$ |
— |
|
|
$ |
57 |
|
|
$ |
76 |
|
$ |
— |
|
|
$ |
76 |
|
|
Collectively evaluated for
impairment |
495 |
|
60 |
|
|
555 |
|
|
474 |
|
67 |
|
|
541 |
|
|
476 |
|
77 |
|
|
553 |
|
|
Total allowance for loan
losses |
$ |
534 |
|
$ |
60 |
|
|
$ |
594 |
|
|
$ |
531 |
|
$ |
67 |
|
|
$ |
598 |
|
|
$ |
552 |
|
$ |
77 |
|
|
$ |
629 |
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for
impairment |
$ |
177 |
|
$ |
42 |
|
|
$ |
219 |
|
|
$ |
223 |
|
$ |
51 |
|
|
$ |
274 |
|
|
$ |
368 |
|
$ |
51 |
|
|
$ |
419 |
|
|
Collectively evaluated for
impairment |
44,203 |
|
4,169 |
|
|
48,372 |
|
|
41,311 |
|
3,880 |
|
|
45,191 |
|
|
41,979 |
|
3,623 |
|
|
45,602 |
|
|
PCI
loans (a) |
— |
|
2 |
|
|
2 |
|
|
2 |
|
3 |
|
|
5 |
|
|
30 |
|
6 |
|
|
36 |
|
|
Total loans evaluated for
impairment |
$ |
44,380 |
|
$ |
4,213 |
|
|
$ |
48,593 |
|
|
$ |
41,536 |
|
$ |
3,934 |
|
|
$ |
45,470 |
|
|
$ |
42,377 |
|
$ |
3,680 |
|
|
$ |
46,057 |
|
(a) No allowance for
loan losses was required for PCI loans at December 31,
2014,
2013 and
2012.
Changes in the allowance for
credit losses on lending-related commitments, included in "accrued expenses and
other liabilities" on the consolidated balance sheets, are summarized in the
following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
|
|
|
|
|
Years
Ended December 31 |
2014 |
|
2013 |
|
2012 |
|
Balance
at beginning of period |
$ |
36 |
|
|
$ |
32 |
|
|
$ |
26 |
|
|
Provision for credit losses
on lending-related commitments |
5 |
|
|
4 |
|
|
6 |
|
|
Balance
at end of period |
$ |
41 |
|
|
$ |
36 |
|
|
$ |
32 |
|
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
Individually
Evaluated Impaired Loans
The following table presents
additional information regarding individually evaluated impaired
loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
Investment In: |
|
|
|
|
|
(in
millions) |
Impaired
Loans
with
No
Related
Allowance |
|
Impaired
Loans
with
Related
Allowance |
|
Total
Impaired
Loans |
|
Unpaid
Principal
Balance |
|
Related
Allowance
for
Loan
Losses |
|
December 31,
2014 |
|
|
|
|
|
|
|
|
|
|
Business
loans: |
|
|
|
|
|
|
|
|
|
|
Commercial |
$ |
7 |
|
|
$ |
103 |
|
|
$ |
110 |
|
|
$ |
148 |
|
|
$ |
29 |
|
|
Real
estate construction: |
|
|
|
|
|
|
|
|
|
|
Other
business lines (b) |
— |
|
|
1 |
|
|
1 |
|
|
1 |
|
|
— |
|
|
Commercial
mortgage: |
|
|
|
|
|
|
|
|
|
|
Commercial
Real Estate business line (a) |
— |
|
|
19 |
|
|
19 |
|
|
41 |
|
|
8 |
|
|
Other
business lines (b) |
4 |
|
|
43 |
|
|
47 |
|
|
63 |
|
|
2 |
|
|
Total
commercial mortgage |
4 |
|
|
62 |
|
|
66 |
|
|
104 |
|
|
10 |
|
|
Total
business loans |
11 |
|
|
166 |
|
|
177 |
|
|
253 |
|
|
39 |
|
|
Retail
loans: |
|
|
|
|
|
|
|
|
|
|
Residential
mortgage |
25 |
|
|
— |
|
|
25 |
|
|
28 |
|
|
— |
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
Home
equity |
12 |
|
|
— |
|
|
12 |
|
|
16 |
|
|
— |
|
|
Other
consumer |
5 |
|
|
— |
|
|
5 |
|
|
7 |
|
|
— |
|
|
Total
consumer |
17 |
|
|
— |
|
|
17 |
|
|
23 |
|
|
— |
|
|
Total
retail loans (c) |
42 |
|
|
— |
|
|
42 |
|
|
51 |
|
|
— |
|
|
Total
individually evaluated impaired loans |
$ |
53 |
|
|
$ |
166 |
|
|
$ |
219 |
|
|
$ |
304 |
|
|
$ |
39 |
|
|
December 31,
2013 |
|
|
|
|
|
|
|
|
|
|
Business
loans: |
|
|
|
|
|
|
|
|
|
|
Commercial |
$ |
10 |
|
|
$ |
64 |
|
|
$ |
74 |
|
|
$ |
121 |
|
|
$ |
26 |
|
|
Real
estate construction: |
|
|
|
|
|
|
|
|
|
|
Commercial
Real Estate business line (a) |
— |
|
|
20 |
|
|
20 |
|
|
24 |
|
|
3 |
|
|
Other
business lines (b) |
— |
|
|
1 |
|
|
1 |
|
|
1 |
|
|
— |
|
|
Total
real estate construction |
— |
|
|
21 |
|
|
21 |
|
|
25 |
|
|
3 |
|
|
Commercial
mortgage: |
|
|
|
|
|
|
|
|
|
|
Commercial
Real Estate business line (a) |
— |
|
|
60 |
|
|
60 |
|
|
104 |
|
|
12 |
|
|
Other
business lines (b) |
1 |
|
|
63 |
|
|
64 |
|
|
90 |
|
|
15 |
|
|
Total
commercial mortgage |
1 |
|
|
123 |
|
|
124 |
|
|
194 |
|
|
27 |
|
|
International |
— |
|
|
4 |
|
|
4 |
|
|
4 |
|
|
1 |
|
|
Total
business loans |
11 |
|
|
212 |
|
|
223 |
|
|
344 |
|
|
57 |
|
|
Retail
loans: |
|
|
|
|
|
|
|
|
|
|
Residential
mortgage |
35 |
|
|
— |
|
|
35 |
|
|
42 |
|
|
— |
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
Home
equity |
12 |
|
|
— |
|
|
12 |
|
|
17 |
|
|
— |
|
|
Other
consumer |
4 |
|
|
— |
|
|
4 |
|
|
12 |
|
|
— |
|
|
Total
consumer |
16 |
|
|
— |
|
|
16 |
|
|
29 |
|
|
— |
|
|
Total
retail loans (c) |
51 |
|
|
— |
|
|
51 |
|
|
71 |
|
|
— |
|
|
Total
individually evaluated impaired loans |
$ |
62 |
|
|
$ |
212 |
|
|
$ |
274 |
|
|
$ |
415 |
|
|
$ |
57 |
|
|
|
|
(a) |
Primarily
loans to real estate developers. |
|
|
|
(b) |
Primarily
loans secured by owner-occupied real
estate. |
|
|
|
(c) |
Individually
evaluated retail loans had no related allowance for loan losses, primarily
due to policy which results in direct write-downs of restructured retail
loans. |
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
The following table presents
information regarding average individually evaluated impaired loans and the
related interest recognized. Interest income recognized for the period
primarily related to reduced-rate loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
Evaluated Impaired Loans |
|
|
2014 |
|
2013 |
|
2012 |
|
(in
millions) |
Average
Balance for the Period |
|
Interest
Income Recognized for the Period |
|
Average
Balance for the Period |
|
Interest
Income Recognized for the Period |
|
Average
Balance for the Period |
|
Interest
Income Recognized for the Period |
|
Years
Ended December 31 |
|
|
|
|
|
|
|
|
|
|
|
|
Business
loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
$ |
77 |
|
|
$ |
2 |
|
|
$ |
99 |
|
|
$ |
2 |
|
|
$ |
195 |
|
|
$ |
4 |
|
|
Real
estate construction: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
business line (a) |
14 |
|
|
— |
|
|
25 |
|
|
— |
|
|
58 |
|
|
— |
|
|
Other
business lines (b) |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
4 |
|
|
— |
|
|
Total
real estate construction |
14 |
|
|
— |
|
|
25 |
|
|
— |
|
|
62 |
|
|
— |
|
|
Commercial
mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
business line (a) |
48 |
|
|
— |
|
|
81 |
|
|
— |
|
|
139 |
|
|
— |
|
|
Other
business lines (b) |
64 |
|
|
2 |
|
|
105 |
|
|
3 |
|
|
177 |
|
|
4 |
|
|
Total
commercial mortgage |
112 |
|
|
2 |
|
|
186 |
|
|
3 |
|
|
316 |
|
|
4 |
|
|
Lease
financing |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
3 |
|
|
— |
|
|
International |
2 |
|
|
— |
|
|
1 |
|
|
— |
|
|
2 |
|
|
— |
|
|
Total
business loans |
205 |
|
|
4 |
|
|
311 |
|
|
5 |
|
|
578 |
|
|
8 |
|
|
Retail
loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgage |
30 |
|
|
— |
|
|
35 |
|
|
— |
|
|
41 |
|
|
— |
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
Home
equity |
12 |
|
|
— |
|
|
8 |
|
|
— |
|
|
5 |
|
|
— |
|
|
Other
consumer |
4 |
|
|
— |
|
|
4 |
|
|
— |
|
|
4 |
|
|
— |
|
|
Total
consumer |
16 |
|
|
— |
|
|
12 |
|
|
— |
|
|
9 |
|
|
— |
|
|
Total
retail loans |
46 |
|
|
— |
|
|
47 |
|
|
— |
|
|
50 |
|
|
— |
|
|
Total individually
evaluated impaired loans |
$ |
251 |
|
|
$ |
4 |
|
|
$ |
358 |
|
|
$ |
5 |
|
|
$ |
628 |
|
|
$ |
8 |
|
|
|
|
(a) |
Primarily
loans to real estate developers. |
|
|
|
(b) |
Primarily
loans secured by owner-occupied real
estate. |
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
Troubled Debt
Restructurings
The following tables detail the
recorded balance at December 31,
2014 and
2013 of loans considered to be TDRs
that were restructured during the years
ended December 31, 2014
and 2013, by type of modification. In
cases of loans with more than one type of modification, the loans were
categorized based on the most significant modification.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
2013 |
|
|
Type
of Modification |
|
|
Type
of Modification |
|
|
(in
millions) |
Principal
Deferrals (a) |
Interest
Rate Reductions |
Total
Modifications |
|
Principal
Deferrals (a) |
Interest
Rate Reductions |
AB
Note Restructures (b) |
Total
Modifications |
|
Years
Ended December 31 |
|
|
|
|
|
|
|
|
|
|
|
Business
loans: |
|
|
|
|
|
|
|
|
|
|
|
Commercial |
$ |
22 |
|
|
$ |
— |
|
$ |
22 |
|
|
$ |
21 |
|
|
$ |
— |
|
$ |
8 |
|
$ |
29 |
|
|
Commercial
mortgage: |
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
business line (c) |
— |
|
|
— |
|
— |
|
|
32 |
|
|
— |
|
— |
|
32 |
|
|
Other
business lines (d) |
6 |
|
|
— |
|
6 |
|
|
8 |
|
|
— |
|
11 |
|
19 |
|
|
Total commercial
mortgage |
6 |
|
|
— |
|
6 |
|
|
40 |
|
|
— |
|
11 |
|
51 |
|
|
Total
business loans |
28 |
|
|
— |
|
28 |
|
|
61 |
|
|
— |
|
19 |
|
80 |
|
|
Retail
loans: |
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgage |
1 |
|
(e) |
— |
|
1 |
|
|
3 |
|
(e) |
2 |
|
— |
|
5 |
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
Home
equity |
1 |
|
(e) |
3 |
|
4 |
|
|
7 |
|
(e) |
2 |
|
— |
|
9 |
|
|
Other
consumer |
1 |
|
(e) |
— |
|
1 |
|
|
2 |
|
(e) |
— |
|
— |
|
2 |
|
|
Total
consumer |
2 |
|
|
3 |
|
5 |
|
|
9 |
|
|
2 |
|
— |
|
11 |
|
|
Total
retail loans |
3 |
|
|
3 |
|
6 |
|
|
12 |
|
|
4 |
|
— |
|
16 |
|
|
Total
loans |
$ |
31 |
|
|
$ |
3 |
|
$ |
34 |
|
|
$ |
73 |
|
|
$ |
4 |
|
$ |
19 |
|
$ |
96 |
|
|
|
|
(a) |
Primarily
represents loan balances where terms were extended 90 days or
more at or above contractual interest
rates. |
|
|
|
(b) |
Loan
restructurings whereby the original loan is restructured into two notes:
an "A" note, which generally reflects the portion of the modified loan
which is expected to be collected; and a "B" note, which is either fully
charged off or exchanged for an equity
interest. |
|
|
|
(c) |
Primarily
loans to real estate developers. |
|
|
|
(d) |
Primarily
loans secured by owner-occupied real
estate. |
|
|
|
(e) |
Includes
bankruptcy loans for which the court has discharged the borrower's
obligation and the borrower has not reaffirmed the
debt. |
At December 31,
2014 and
2013, commitments to lend additional
funds to borrowers whose terms have been modified in TDRs totaled $3 million
and $4
million,
respectively.
The majority of the modifications
considered to be TDRs that occurred during the years
ended December 31, 2014
and 2013 were principal deferrals. The
Corporation charges interest on principal balances outstanding during deferral
periods. Additionally, none of the modifications involved forgiveness of
principal. As a result, the current and future financial effects of the
recorded balance of loans considered to be TDRs that were restructured during
the years ended
December 31, 2014
and 2013 were insignificant.
On an ongoing basis, the
Corporation monitors the performance of modified loans to their restructured
terms. In the event of a subsequent default, the allowance for loan losses
continues to be reassessed on the basis of an individual evaluation of the
loan.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
The following table presents
information regarding the recorded balance at December 31,
2014 and
2013 of loans modified by principal
deferral during the years ended December 31,
2014 and
2013, and those principal deferrals
which experienced a subsequent default during the same periods. For principal
deferrals, incremental deterioration in the credit quality of the loan,
represented by a downgrade in the risk rating of the loan, for example, due to
missed interest payments or a reduction of collateral value, is considered a
subsequent default.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
2013 |
|
(in
millions) |
Balance
at December 31 |
Subsequent
Default in the Year Ended December 31 |
|
Balance
at December 31 |
Subsequent
Default in the Year Ended December 31 |
|
Principal
deferrals: |
|
|
|
|
|
|
|
|
Business
loans: |
|
|
|
|
|
|
|
|
Commercial |
$ |
22 |
|
|
$ |
1 |
|
|
$ |
21 |
|
|
$ |
11 |
|
|
Commercial
mortgage: |
|
|
|
|
|
|
|
|
Commercial Real Estate
business line (a) |
— |
|
|
— |
|
|
32 |
|
|
19 |
|
|
Other
business lines (b) |
6 |
|
|
2 |
|
|
8 |
|
|
5 |
|
|
Total commercial
mortgage |
6 |
|
|
2 |
|
|
40 |
|
|
24 |
|
|
Total
business loans |
28 |
|
|
3 |
|
|
61 |
|
|
35 |
|
|
Retail
loans: |
|
|
|
|
|
|
|
|
Residential
mortgage |
1 |
|
(c) |
— |
|
|
3 |
|
(c) |
— |
|
|
Consumer: |
|
|
|
|
|
|
|
|
Home
equity |
1 |
|
(c) |
— |
|
|
7 |
|
(c) |
— |
|
|
Other
consumer |
1 |
|
(c) |
— |
|
|
2 |
|
(c) |
— |
|
|
Total
consumer |
2 |
|
|
— |
|
|
9 |
|
|
— |
|
|
Total
retail loans |
3 |
|
|
— |
|
|
12 |
|
|
— |
|
|
Total
principal deferrals |
$ |
31 |
|
|
$ |
3 |
|
|
$ |
73 |
|
|
$ |
35 |
|
|
|
|
(a) |
Primarily
loans to real estate developers. |
|
|
|
(b) |
Primarily
loans secured by owner-occupied real
estate. |
|
|
|
(c) |
Includes
bankruptcy loans for which the court has discharged the borrower's
obligation and the borrower has not reaffirmed the
debt. |
During the years ended
December 31,
2014 and
2013, loans with a carrying value of
$3
million and
$4
million at
December 31,
2014 and
2013, respectively, were modified by
interest rate reduction and loans with a carrying value of $19
million at
December 31,
2013, were
restructured into two notes (AB note restructures). For reduced-rate loans and
AB note restructures, a subsequent payment default is defined in terms of
delinquency, when a principal or interest payment is 90 days past due. There were
no subsequent payment defaults of
reduced rate loans or AB note restructures during the years
ended December 31, 2014
and 2013.
Purchased
Credit-Impaired Loans
Acquired loans are initially
recorded at fair value with no carryover of any allowance for loan losses. Loans
acquired with evidence of credit quality deterioration at acquisition for which
it was probable that the Corporation would not be able to collect all
contractual amounts due were accounted for as PCI loans. The Corporation
aggregated the acquired PCI loans into pools of loans based on common risk
characteristics.
No allowance for loan losses was
required on the acquired PCI loan pools at both December 31,
2014 and
2013. The carrying amount of acquired
PCI loans included in the consolidated balance sheet and the related outstanding
balance at December 31,
2014 and
2013 were as follows.
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
|
|
|
December
31 |
2014 |
|
2013 |
|
Acquired
PCI loans: |
|
|
|
|
Carrying
amount |
$ |
2 |
|
|
$ |
5 |
|
|
Outstanding
balance (principal and unpaid interest) |
8 |
|
|
46 |
|
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
Changes in the accretable yield
for acquired PCI loans for the years
ended December 31, 2014
and 2013 were as follows.
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
|
Years
Ended December 31 |
2014 |
|
2013 |
|
Balance
at beginning of period |
$ |
15 |
|
|
$ |
16 |
|
|
Reclassifications
from nonaccretable |
12 |
|
|
28 |
|
|
Accretion |
(26 |
) |
|
(29 |
) |
|
Balance
at end of period |
$ |
1 |
|
|
$ |
15 |
|
NOTE
5 - SIGNIFICANT
GROUP CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk may
exist when a number of borrowers are engaged in similar activities, or
activities in the same geographic region, and have similar economic
characteristics that would cause them to be similarly impacted by changes in
economic or other conditions. Concentrations of both on-balance sheet and
off-balance sheet credit risk are controlled and monitored as part of credit
policies. The Corporation is a regional financial services holding company with
a geographic concentration of its on-balance-sheet and off-balance-sheet
activities in Michigan, California and Texas.
As outlined below, the
Corporation has a concentration of credit risk with the automotive industry.
Loans to automotive dealers and to borrowers involved with automotive production
are reported as automotive, as management believes these loans have similar
economic characteristics that might cause them to react similarly to changes in
economic conditions. This aggregation involves the exercise of judgment.
Included in automotive production are: (a) original equipment manufacturers
and Tier 1 and Tier 2 suppliers that produce components used in vehicles and
whose primary revenue source is automotive-related (“primary” defined as greater
than 50%) and (b) other manufacturers that produce components used in
vehicles and whose primary revenue source is automotive-related. Loans less than
$1 million and loans recorded in the Small Business loan portfolio were excluded
from the definition. Outstanding loans, included in "commercial loans" on the
consolidated balance sheets, and total exposure from loans, unused commitments
and standby letters of credit to companies related to the automotive industry
were as follows:
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
|
|
|
December 31 |
2014 |
|
2013 |
|
Automotive
loans: |
|
|
|
|
Production |
$ |
1,236 |
|
|
$ |
1,229 |
|
|
Dealer |
6,431 |
|
|
5,854 |
|
|
Total
automotive loans |
$ |
7,667 |
|
|
$ |
7,083 |
|
|
Total
automotive exposure: |
|
|
|
|
Production |
$ |
2,408 |
|
|
$ |
2,316 |
|
|
Dealer |
7,763 |
|
|
6,857 |
|
|
Total
automotive exposure |
$ |
10,171 |
|
|
$ |
9,173 |
|
Further, the Corporation’s
portfolio of commercial real estate loans, which includes real estate
construction and commercial mortgage loans, was as follows.
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
|
|
|
December 31 |
2014 |
|
2013 |
|
Real
estate construction loans: |
|
|
|
|
Commercial
Real Estate business line (a) |
$ |
1,606 |
|
|
$ |
1,447 |
|
|
Other
business lines (b) |
349 |
|
|
315 |
|
|
Total
real estate construction loans |
1,955 |
|
|
1,762 |
|
|
Commercial
mortgage loans: |
|
|
|
|
Commercial
Real Estate business line (a) |
1,790 |
|
|
1,678 |
|
|
Other
business lines (b) |
6,814 |
|
|
7,109 |
|
|
Total
commercial mortgage loans |
8,604 |
|
|
8,787 |
|
|
Total
commercial real estate loans |
$ |
10,559 |
|
|
$ |
10,549 |
|
|
Total
unused commitments on commercial real estate loans |
$ |
2,335 |
|
|
$ |
1,780 |
|
|
|
|
(a) |
Primarily
loans to real estate developers. |
|
|
|
(b) |
Primarily
loans secured by owner-occupied real
estate. |
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
NOTE
6 - PREMISES
AND EQUIPMENT
A summary of premises and
equipment by major category follows:
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
|
|
|
December 31 |
2014 |
|
2013 |
|
Land |
$ |
88 |
|
|
$ |
90 |
|
|
Buildings
and improvements |
808 |
|
|
830 |
|
|
Furniture
and equipment |
508 |
|
|
515 |
|
|
Total
cost |
1,404 |
|
|
1,435 |
|
|
Less:
Accumulated depreciation and amortization |
(872 |
) |
|
(841 |
) |
|
Net
book value |
$ |
532 |
|
|
$ |
594 |
|
The Corporation conducts a
portion of its business from leased facilities and leases certain equipment.
Rental expense for leased properties and equipment amounted to $89
million,
$78
million and
$81
million in
2014, 2013 and 2012, respectively. Rental expense in
2014 included approximately
$10
million of lease
termination charges. As of December 31,
2014, future minimum
rental payments under operating leases were as follows:
|
|
|
|
|
|
(in
millions) |
|
|
Years
Ending December 31 |
|
|
2015 |
$ |
73 |
|
|
2016 |
67 |
|
|
2017 |
58 |
|
|
2018 |
51 |
|
|
2019 |
42 |
|
|
Thereafter |
182 |
|
|
Total |
$ |
473 |
|
NOTE
7 - GOODWILL
AND CORE DEPOSIT INTANGIBLES
The following table summarizes
the carrying value of goodwill for the years ended December 31,
2014, 2013 and 2012.
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
|
|
|
December
31 |
2014 |
2013 |
2012 |
|
Business
Bank |
$ |
380 |
|
$ |
380 |
|
$ |
380 |
|
|
Retail
Bank |
194 |
|
194 |
|
194 |
|
|
Wealth
Management |
61 |
|
61 |
|
61 |
|
|
Total |
$ |
635 |
|
$ |
635 |
|
$ |
635 |
|
The Corporation performs its
annual evaluation of goodwill impairment in the third quarter of each year and
on an interim basis if events or changes in circumstances between annual tests
indicate goodwill might be impaired. In 2014 and 2013, the annual test of
goodwill impairment was performed as of the beginning of the third quarter. At
the conclusion of the first step of the annual and interim goodwill impairment
tests performed in 2014 and 2013 the estimated fair values of all reporting
units exceeded their carrying amounts, including goodwill, indicating that
goodwill was not impaired. There have been no events since the annual test
performed in the third quarter 2014 that would indicate that it was more likely
than not that goodwill had become impaired.
A summary of core deposit
intangible carrying value and related accumulated amortization
follows:
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
|
|
|
December 31 |
2014 |
|
2013 |
|
Gross
carrying amount |
$ |
34 |
|
|
$ |
34 |
|
|
Accumulated
amortization |
(21 |
) |
|
(18 |
) |
|
Net
carrying amount |
$ |
13 |
|
|
$ |
16 |
|
The Corporation recorded
amortization expense related to the core deposit intangible of $3
million and
$4
million for the
years ended December 31,
2014 and
2013, respectively. At December 31,
2014, estimated
future amortization expense was as follows:
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
|
|
|
|
|
|
(in
millions) |
|
|
Years
Ending December 31 |
|
|
2015 |
$ |
3 |
|
|
2016 |
2 |
|
|
2017 |
2 |
|
|
2018 |
2 |
|
|
2019 |
1 |
|
|
Thereafter |
3 |
|
|
Total |
$ |
13 |
|
NOTE
8 - DERIVATIVE
AND CREDIT-RELATED FINANCIAL INSTRUMENTS
In the normal course of business,
the Corporation enters into various transactions involving derivative and
credit-related financial instruments to manage exposure to fluctuations in
interest rate, foreign currency and other market risks and to meet the financing
needs of customers (customer-initiated derivatives). These financial instruments
involve, to varying degrees, elements of market and credit risk. Market and
credit risk are included in the determination of fair value.
Market risk is the potential loss
that may result from movements in interest rates, foreign currency exchange
rates or energy commodity prices that cause an unfavorable change in the value
of a financial instrument. The Corporation manages this risk by establishing
monetary exposure limits and monitoring compliance with those limits. Market
risk inherent in interest rate and energy contracts entered into on behalf of
customers is mitigated by taking offsetting positions, except in those
circumstances when the amount, tenor and/or contract rate level results in
negligible economic risk, whereby the cost of purchasing an offsetting contract
is not economically justifiable. The Corporation mitigates most of the inherent
market risk in foreign exchange contracts entered into on behalf of customers by
taking offsetting positions and manages the remainder through individual foreign
currency position limits and aggregate value-at-risk limits. These limits are
established annually and reviewed quarterly. Market risk inherent in derivative
instruments held or issued for risk management purposes is typically offset by
changes in the fair value of the assets or liabilities being
hedged.
Credit risk is the possible loss
that may occur in the event of nonperformance by the counterparty to a financial
instrument. The Corporation attempts to minimize credit risk arising from
customer-initiated derivatives by evaluating the creditworthiness of each
customer, adhering to the same credit approval process used for traditional
lending activities and obtaining collateral as deemed necessary. Derivatives
with dealer counterparties are either cleared through a clearinghouse or settled
directly with a single counterparty. For derivatives settled directly with
dealer counterparties, the Corporation utilizes counterparty risk limits and
monitoring procedures as well as master netting arrangements and bilateral
collateral agreements to facilitate the management of credit risk. Master
netting arrangements effectively reduce credit risk by permitting settlement of
positive and negative positions and offset cash collateral held with the same
counterparty on a net basis. Bilateral collateral agreements require daily
exchange of cash or highly rated securities issued by the U.S. Treasury or other
U.S. government entities to collateralize amounts due to either party beyond
certain risk limits. At December 31,
2014, counterparties
with bilateral collateral agreements had pledged $245
million of
marketable investment securities and deposited $264
million of cash with
the Corporation to secure the fair value of contracts in an unrealized gain
position, and the Corporation had pledged $2
million of
investment securities as collateral for contracts in an unrealized loss
position. For those counterparties not covered under bilateral collateral
agreements, collateral is obtained, if deemed necessary, based on the results of
management’s credit evaluation of the counterparty. Collateral varies, but may
include cash, investment securities, accounts receivable, equipment or real
estate. Included in the fair value of derivative instruments are credit
valuation adjustments reflecting counterparty credit risk. These adjustments are
determined by applying a credit spread for the counterparty or the Corporation,
as appropriate, to the total expected exposure of the derivative.
The aggregate fair value of all
derivative instruments with credit-risk-related contingent features that were in
a liability position on December 31,
2014 was
$6
million, for which
the Corporation had pledged collateral of $2
million in the
normal course of business. The credit-risk-related contingent features require
the Corporation’s debt to maintain an investment grade credit rating from each
of the major credit rating agencies. If the Corporation’s debt were to fall
below investment grade, the counterparties to the derivative instruments could
require additional overnight collateral on derivative instruments in net
liability positions. If the credit-risk-related contingent features underlying
these agreements had been triggered on December 31,
2014, the
Corporation would have been required to assign an additional $4
million of
collateral to its counterparties.
Derivative
Instruments
Derivative instruments utilized
by the Corporation are negotiated over-the-counter and primarily include swaps,
caps and floors, forward contracts and options, each of which may relate to
interest rates, energy commodity prices or foreign currency exchange rates.
Swaps are agreements in which two parties periodically exchange cash payments
based on specified indices applied to a specified notional amount until a stated
maturity. Caps and floors are agreements which entitle the buyer to receive cash
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
payments based on the difference
between a specified reference rate or price and an agreed strike rate or price,
applied to a specified notional amount until a stated maturity. Forward
contracts are over-the-counter agreements to buy or sell an asset at a specified
future date and price. Options are similar to forward contracts except the
purchaser has the right, but not the obligation, to buy or sell the asset during
a specified period or at a specified future date.
Over-the-counter contracts are
tailored to meet the needs of the counterparties involved and, therefore,
contain a greater degree of credit risk and liquidity risk than exchange-traded
contracts, which have standardized terms and readily available price
information. The Corporation reduces exposure to market and liquidity risks from
over-the-counter derivative instruments entered into for risk management
purposes, and transactions entered into to mitigate the market risk associated
with customer-initiated transactions, by conducting hedging transactions with
investment grade domestic and foreign financial institutions and subjecting
counterparties to credit approvals, limits and collateral monitoring procedures
similar to those used in making other extensions of credit. In addition, certain
derivative contracts executed bilaterally with a dealer counterparty in the
over-the-counter market are cleared through a clearinghouse, whereby the
clearinghouse becomes the counterparty to the transaction.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
The following table presents the
composition of the Corporation’s derivative instruments held or issued for risk
management purposes or in connection with customer-initiated and other
activities at December 31,
2014 and
2013. The table excludes commitments,
warrants accounted for as derivatives and a derivative related to the
Corporation’s 2008 sale of its remaining ownership of Visa shares.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2014 |
|
December 31,
2013 |
|
|
|
|
Fair
Value |
|
|
|
Fair
Value |
|
(in
millions) |
Notional/
Contract
Amount (a) |
|
Gross
Derivative Assets |
|
Gross
Derivative Liabilities |
|
Notional/
Contract
Amount (a) |
|
Gross
Derivative Assets |
|
Gross
Derivative Liabilities |
|
Risk
management purposes |
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
Swaps -
fair value -
receive fixed/pay floating |
$ |
1,800 |
|
|
$ |
175 |
|
|
$ |
— |
|
|
$ |
1,450 |
|
|
$ |
198 |
|
|
$ |
— |
|
|
Derivatives
used as economic hedges |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
Spot,
forwards and swaps |
508 |
|
|
4 |
|
|
— |
|
|
253 |
|
|
1 |
|
|
— |
|
|
Total
risk management purposes |
2,308 |
|
|
179 |
|
|
— |
|
|
1,703 |
|
|
199 |
|
|
— |
|
|
Customer-initiated
and other activities |
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
Caps
and floors written |
274 |
|
|
— |
|
|
— |
|
|
277 |
|
|
— |
|
|
1 |
|
|
Caps
and floors purchased |
274 |
|
|
— |
|
|
— |
|
|
277 |
|
|
1 |
|
|
— |
|
|
Swaps |
11,780 |
|
|
153 |
|
|
102 |
|
|
11,143 |
|
|
181 |
|
|
132 |
|
|
Total
interest rate contracts |
12,328 |
|
|
153 |
|
|
102 |
|
|
11,697 |
|
|
182 |
|
|
133 |
|
|
Energy
contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
Caps
and floors written |
1,218 |
|
|
— |
|
|
173 |
|
|
1,325 |
|
|
1 |
|
|
48 |
|
|
Caps
and floors purchased |
1,218 |
|
|
173 |
|
|
— |
|
|
1,325 |
|
|
48 |
|
|
1 |
|
|
Swaps |
2,496 |
|
|
354 |
|
|
352 |
|
|
2,724 |
|
|
56 |
|
|
53 |
|
|
Total
energy contracts |
4,932 |
|
|
527 |
|
|
525 |
|
|
5,374 |
|
|
105 |
|
|
102 |
|
|
Foreign
exchange contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
Spot,
forwards, options and swaps |
1,994 |
|
|
35 |
|
|
34 |
|
|
1,764 |
|
|
14 |
|
|
14 |
|
|
Total
customer-initiated and other activities |
19,254 |
|
|
715 |
|
|
661 |
|
|
18,835 |
|
|
301 |
|
|
249 |
|
|
Total
gross derivatives |
$ |
21,562 |
|
|
894 |
|
|
661 |
|
|
$ |
20,538 |
|
|
500 |
|
|
249 |
|
|
Amounts offset in the
consolidated balance sheets: |
|
|
|
|
|
|
|
|
|
|
|
|
Netting adjustment -
Offsetting derivative assets/liabilities |
|
|
(133 |
) |
|
(133 |
) |
|
|
|
(187 |
) |
|
(187 |
) |
|
Netting adjustment - Cash
collateral received/posted |
|
|
(262 |
) |
|
— |
|
|
|
|
(2 |
) |
|
(10 |
) |
|
Net derivatives included in
the consolidated balance sheets (b) |
|
|
499 |
|
|
528 |
|
|
|
|
|
311 |
|
|
52 |
|
|
Amounts not offset in the
consolidated balance sheets: |
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
pledged under bilateral collateral agreements |
|
|
(239 |
) |
|
(2 |
) |
|
|
|
(138 |
) |
|
(10 |
) |
|
Net derivatives after
deducting amounts not offset in the consolidated balance
sheets |
|
|
|
$ |
260 |
|
|
$ |
526 |
|
|
|
|
|
$ |
173 |
|
|
$ |
42 |
|
|
|
|
(a) |
Notional
or contractual amounts, which represent the extent of involvement in the
derivatives market, are used to determine the contractual cash flows
required in accordance with the terms of the agreement. These amounts are
typically not exchanged, significantly exceed amounts subject to credit or
market risk and are not reflected in the consolidated balance
sheets. |
|
|
|
(b) |
Net
derivative assets are included in “accrued income and other assets” and
net derivative liabilities are included in “accrued expenses and other
liabilities” on the consolidated balance sheets. Included in the fair
value of net derivative assets and net derivative liabilities are credit
valuation adjustments reflecting counterparty credit risk and credit risk
of the Corporation. The fair value of net derivative assets included
credit valuation adjustments for counterparty credit risk of $2
million
at both December 31,
2014
and 2013. |
Risk
Management
As an end-user, the Corporation
employs a variety of financial instruments for risk management purposes,
including cash instruments, such as investment securities, as well as derivative
instruments. Activity related to these instruments is centered predominantly in
the interest rate markets and mainly involves interest rate swaps. Various other
types of instruments also may
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
be used to manage exposures to
market risks, including interest rate caps and floors, total return swaps,
foreign exchange forward contracts and foreign exchange swap
agreements.
The Corporation entered into
interest rate swap agreements related to medium- and long-term debt for interest
rate risk management purposes. These interest rate swap agreements effectively
modify the Corporation’s exposure to interest rate risk by converting fixed-rate
debt to a floating rate. These agreements involve the receipt of fixed-rate
interest amounts in exchange for floating-rate interest payments over the life
of the agreement, without an exchange of the underlying principal amount. Risk
management fair value interest rate swaps generated net interest income of
$72
million for each of
the years ended
December 31, 2014
and 2013. The Corporation recognized
an insignificant
amount of gain for
the year ended December 31,
2014 and
an insignificant
amount of loss for
the year ended December 31,
2013 in "other
noninterest income" in the consolidated statements of income for the ineffective
portion of risk management derivative instruments designated as fair value
hedges of fixed-rate debt.
Foreign exchange rate risk arises
from changes in the value of certain assets and liabilities denominated in
foreign currencies. The Corporation employs spot and forward contracts in
addition to swap contracts to manage exposure to these and other risks. The
Corporation recognized an
insignificant amount
of net gains for the year ended December 31,
2014 and
an insignificant
amount of net losses
for the year ended December 31,
2013 on risk
management derivative instruments used as economic hedges in "other noninterest
income" in the consolidated statements of income.
The
following table summarizes the expected weighted average remaining maturity of
the notional amount of risk management interest rate swaps and the weighted
average interest rates associated with amounts expected to be received or paid
on interest rate swap agreements as of December 31,
2014 and
2013.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average |
|
(dollar
amounts in millions) |
Notional
Amount |
|
Remaining
Maturity
(in years) |
|
Receive Rate |
|
Pay Rate (a) |
|
December 31,
2014 |
|
|
|
|
|
|
|
|
Swaps
- fair value - receive fixed/pay floating rate |
|
|
|
|
|
|
|
|
Medium-
and long-term debt designation |
$ |
1,800 |
|
|
4.6 |
|
4.54 |
% |
|
0.49 |
% |
|
December 31,
2013 |
|
|
|
|
|
|
|
|
Swaps
- fair value - receive fixed/pay floating rate |
|
|
|
|
|
|
|
|
Medium-
and long-term debt designation |
1,450 |
|
|
3.4 |
|
5.45 |
|
|
0.38 |
|
|
|
|
(a) |
Variable
rates paid on receive fixed swaps are based on six-month LIBOR rates in
effect at December 31,
2014
and 2013. |
Management believes these hedging
strategies achieve the desired relationship between the rate maturities of
assets and funding sources which, in turn, reduce the overall exposure of net
interest income to interest rate risk, although there can be no assurance that
such strategies will be successful.
Customer-Initiated
and Other
The Corporation enters into
derivative transactions at the request of customers and generally takes
offsetting positions with dealer counterparties to mitigate the inherent market
risk. Income primarily results from the spread between the customer derivative
and the offsetting dealer position.
For customer-initiated foreign
exchange contracts where offsetting positions have not been taken, the
Corporation manages the remaining inherent market risk through individual
foreign currency position limits and aggregate value-at-risk limits. These
limits are established annually and reviewed quarterly. For those
customer-initiated derivative contracts which were not offset or where the
Corporation holds a speculative position within the limits described above, the
Corporation recognized $1
million of net gains
in “other noninterest income” in the consolidated statements of income for each
of the years ended
December 31, 2014
and 2013.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
Fair values of customer-initiated
and other derivative instruments represent the net unrealized gains or losses on
such contracts and are recorded in the consolidated balance sheets. Changes in
fair value are recognized in the consolidated statements of income. The net
gains recognized in income on customer-initiated derivative instruments, net of
the impact of offsetting positions, were as follows.
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
|
|
|
|
|
Years
Ended December 31 |
|
Location
of Gain |
2014 |
|
2013 |
|
Interest
rate contracts |
|
Other
noninterest income |
$ |
20 |
|
|
$ |
22 |
|
|
Energy
contracts |
|
Other
noninterest income |
2 |
|
|
3 |
|
|
Foreign
exchange contracts |
|
Foreign
exchange income |
38 |
|
|
35 |
|
|
Total |
|
|
$ |
60 |
|
|
$ |
60 |
|
Credit-Related
Financial Instruments
The Corporation issues
off-balance sheet financial instruments in connection with commercial and
consumer lending activities. The Corporation’s credit risk associated with these
instruments is represented by the contractual amounts indicated in the following
table.
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
|
|
|
December
31 |
2014 |
|
2013 |
|
Unused
commitments to extend credit: |
|
|
|
|
Commercial
and other |
$ |
27,905 |
|
|
$ |
27,728 |
|
|
Bankcard,
revolving check credit and home equity loan commitments |
2,151 |
|
|
1,889 |
|
|
Total
unused commitments to extend credit |
$ |
30,056 |
|
|
$ |
29,617 |
|
|
Standby
letters of credit |
$ |
3,880 |
|
|
$ |
4,297 |
|
|
Commercial
letters of credit |
75 |
|
|
103 |
|
|
Other
credit-related financial instruments |
1 |
|
|
2 |
|
The Corporation maintains an
allowance to cover probable credit losses inherent in lending-related
commitments, including unused commitments to extend credit, letters of credit
and financial guarantees. At December 31,
2014 and
2013, the allowance for credit losses
on lending-related commitments, included in “accrued expenses and other
liabilities” on the consolidated balance sheets, was $41
million and
$36
million,
respectively.
Unused
Commitments to Extend Credit
Commitments to extend credit are
legally binding agreements to lend to a customer, provided there is no violation
of any condition established in the contract. These commitments generally have
fixed expiration dates or other termination clauses and may require payment of a
fee. Since many commitments expire without being drawn upon, the total
contractual amount of commitments does not necessarily represent future cash
requirements of the Corporation. Commercial and other unused commitments are
primarily variable rate commitments. The allowance for credit losses on
lending-related commitments included $30
million and
$28
million at
December 31,
2014 and
2013, respectively, for probable
credit losses inherent in the Corporation’s unused commitments to extend
credit.
Standby
and Commercial Letters of Credit
Standby letters of credit
represent conditional obligations of the Corporation which guarantee the
performance of a customer to a third party. Standby letters of credit are
primarily issued to support public and private borrowing arrangements, including
commercial paper, bond financing and similar transactions. Commercial letters of
credit are issued to finance foreign or domestic trade transactions. These
contracts expire in decreasing amounts through the year 2022. The Corporation may enter into
participation arrangements with third parties that effectively reduce the
maximum amount of future payments which may be required under standby and
commercial letters of credit. These risk participations covered $316
million and
$259
million,
respectively, of the $4.0
billion and
$4.4
billion standby and
commercial letters of credit outstanding at December 31,
2014 and
2013, respectively.
The carrying value of the
Corporation’s standby and commercial letters of credit, included in “accrued
expenses and other liabilities” on the consolidated balance sheets, totaled
$55
million at
December 31,
2014, including
$44
million in deferred
fees and $11
million in the
allowance for credit losses on lending-related commitments. At December 31,
2013, the comparable
amounts were $59
million,
$51
million and
$8
million,
respectively.
The following table presents a
summary of criticized standby and commercial letters of credit at December 31,
2014 and
December 31,
2013. The
Corporation's criticized list is consistent with the Special mention,
Substandard and Doubtful categories
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
defined by regulatory
authorities. The Corporation manages credit risk through underwriting,
periodically reviewing and approving its credit exposures using Board committee
approved credit policies and guidelines.
|
|
|
|
|
|
|
|
|
|
(dollar
amounts in millions) |
December 31,
2014 |
|
December 31,
2013 |
|
Total
criticized standby and commercial letters of credit |
$ |
79 |
|
|
$ |
69 |
|
|
As
a percentage of total outstanding standby and commercial letters of
credit |
2.0 |
% |
|
1.6 |
% |
Other
Credit-Related Financial Instruments
The Corporation enters into
credit risk participation agreements, under which the Corporation assumes credit
exposure associated with a borrower’s performance related to certain interest
rate derivative contracts. The Corporation is not a party to the interest rate
derivative contracts and only enters into these credit risk participation
agreements in instances in which the Corporation is also a party to the related
loan participation agreement for such borrowers. The Corporation manages its
credit risk on the credit risk participation agreements by monitoring the
creditworthiness of the borrowers, which is based on the normal credit review
process had it entered into the derivative instruments directly with the
borrower. The notional amount of such credit risk participation agreement
reflects the pro-rata share of the derivative instrument, consistent with its
share of the related participated loan. As of December 31,
2014 and
2013, the total notional amount of
the credit risk participation agreements was approximately $598
million and
$614
million,
respectively, and the fair value, included in customer-initiated interest rate
contracts recorded in "accrued expenses and other liabilities" on the
consolidated balance sheets, was insignificant for each period. The maximum
estimated exposure to these agreements, as measured by projecting a maximum
value of the guaranteed derivative instruments, assuming 100 percent default by
all obligors on the maximum values, was approximately $7
million at both
December 31,
2014 and
2013. In the event of default, the
lead bank has the ability to liquidate the assets of the borrower, in which case
the lead bank would be required to return a percentage of the recouped assets to
the participating banks. As of December 31,
2014, the weighted
average remaining maturity of outstanding credit risk participation agreements
was 2.9 years.
In 2008, the Corporation sold its
remaining ownership of Visa Class B shares and entered into a derivative
contract. Under the terms of the derivative contract, the Corporation will
compensate the counterparty primarily for dilutive adjustments made to the
conversion factor of the Visa Class B shares to Class A shares based on the
ultimate outcome of litigation involving Visa. Conversely, the Corporation will
be compensated by the counterparty for any increase in the conversion factor
from anti-dilutive adjustments. The notional amount of the derivative contract
was equivalent to approximately 780,000 Visa Class B shares. The fair
value of the derivative liability, included in "accrued expenses and other
liabilities" on the consolidated balance sheets, was $1 million and $2
million at
December 31,
2014 and
2013, respectively.
NOTE
9 - VARIABLE
INTEREST ENTITIES (VIEs)
The Corporation evaluates its
interest in certain entities to determine if these entities meet the definition
of a VIE and whether the Corporation is the primary beneficiary and should
consolidate the entity based on the variable interests it held both at inception
and when there is a change in circumstances that requires a
reconsideration.
The Corporation holds ownership
interests in funds in the form of limited partnerships or limited liability
companies (LLCs) investing in affordable housing projects that qualify for the
LIHTC. The Corporation also directly invests in limited partnerships and LLCs
which invest in community development projects which generate similar tax
credits to investors. As an investor, the Corporation obtains income tax credits
and deductions from the operating losses of these tax credit entities. These tax
credit entities meet the definition of a VIE; however, the Corporation is not
the primary beneficiary of the entities, as the general partner or the managing
member has both the power to direct the activities that most significantly
impact the economic performance of the entities and the obligation to absorb
losses or the right to receive benefits that could be significant to the
entities. While the partnership/LLC agreements allow the limited
partners/investor members, through a majority vote, to remove the general
partner/managing member, this right is not deemed to be substantive as the
general partner/managing member can only be removed for cause.
The Corporation accounts for its
interests in LIHTC entities using the proportional amortization method. Exposure
to loss as a result of the Corporation’s involvement with LIHTC entities at
December 31,
2014 was limited to
approximately $389
million. Ownership
interests in other community development projects which generate similar tax
credits to investors (other tax credit entities) are accounted for under either
the cost or equity method. Exposure to loss as a result of the Corporation's
involvement in other tax credit entities at December 31,
2014 was limited to
approximately $8
million.
Investment balances, including
all legally binding commitments to fund future investments, are included in
“accrued income and other assets” on the consolidated balance sheets. A
liability is recognized in “accrued expenses and other liabilities” on the
consolidated balance sheets for all legally binding unfunded commitments to fund
tax credit entities ($130 million
at December 31,
2014). Amortization
and other write-downs of LIHTC investments are presented on a net basis as a
component of
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
the "provision for income taxes"
on the consolidated statements of income, while amortization and write-downs of
other tax credit investments are recorded in “other noninterest income." The
income tax credits and deductions are recorded as a reduction of income tax
expense and a reduction of federal income taxes payable.
The Corporation provided
no financial or other support that
was not contractually required to any of the above VIEs during the years ended December 31,
2014, 2013
and 2012.
The following table summarizes
the impact of these tax credit entities on line items on the Corporation’s
consolidated statements of income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
|
Years
Ended December 31 |
2014 |
|
2013 |
|
2012 |
|
Other
noninterest income: |
|
|
|
|
|
|
Amortization
of other tax credit investments |
$ |
(5 |
) |
|
$ |
(1 |
) |
|
$ |
(6 |
) |
|
Provision
for income taxes: |
|
|
|
|
|
|
Amortization
of LIHTC Investments |
60 |
|
|
56 |
|
|
52 |
|
|
Low
income housing tax credits |
(59 |
) |
|
(56 |
) |
|
(53 |
) |
|
Other
tax benefits related to tax credit entities |
(28 |
) |
|
(21 |
) |
|
(24 |
) |
|
Total
provision for income taxes |
$ |
(27 |
) |
|
$ |
(21 |
) |
|
$ |
(25 |
) |
For further information on the
Corporation’s consolidation policy, see Note 1.
NOTE
10 -
DEPOSITS
At December 31,
2014, the scheduled
maturities of certificates of deposit and other deposits with a stated maturity
were as follows:
|
|
|
|
|
|
(in
millions) |
|
|
Years
Ending December 31 |
|
|
2015 |
$ |
3,447 |
|
|
2016 |
717 |
|
|
2017 |
182 |
|
|
2018 |
76 |
|
|
2019 |
80 |
|
|
Thereafter |
54 |
|
|
Total |
$ |
4,556 |
|
A maturity distribution of
domestic certificates of deposit of $100,000 and over follows:
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
|
|
|
December
31 |
2014 |
|
2013 |
|
Three
months or less |
$ |
822 |
|
|
$ |
1,088 |
|
|
Over
three months to six months |
456 |
|
|
544 |
|
|
Over
six months to twelve months |
733 |
|
|
1,065 |
|
|
Over
twelve months |
795 |
|
|
570 |
|
|
Total |
$ |
2,806 |
|
|
$ |
3,267 |
|
The aggregate amount of domestic
certificates of deposit that meet or exceed the current FDIC insurance limit of
$250,000 was $2.0
billion and
$2.4
billion at
December 31,
2014 and
2013, respectively. All foreign
office time deposits of $135
million and
$349
million at
December 31,
2014 and
2013, respectively, were in
denominations of $250,000 or more.
NOTE
11 - SHORT-TERM
BORROWINGS
Federal funds purchased and
securities sold under agreements to repurchase generally mature within one to
four days from the transaction date. Other short-term borrowings, which may
consist of commercial paper, borrowed securities, term federal funds purchased,
short-term notes, and treasury tax and loan deposits generally mature within one
to 120 days from the transaction date.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
At December 31,
2014, Comerica Bank
(the Bank), a subsidiary of the Corporation, had pledged loans totaling
$25
billion which
provided for up to $19 billion
of available collateralized borrowing with the FRB.
The following table provides a
summary of short-term borrowings.
|
|
|
|
|
|
|
|
|
|
(dollar
amounts in millions) |
Federal Funds Purchased
and Securities Sold Under
Agreements to
Repurchase |
|
Other
Short-term
Borrowings |
|
December 31,
2014 |
|
|
|
|
Amount
outstanding at year-end |
$ |
116 |
|
|
$ |
— |
|
|
Weighted
average interest rate at year-end |
0.04 |
% |
|
— |
% |
|
Maximum
month-end balance during the year |
$ |
238 |
|
|
$ |
— |
|
|
Average
balance outstanding during the year |
200 |
|
|
— |
|
|
Weighted
average interest rate during the year |
0.04 |
% |
|
— |
% |
|
December 31,
2013 |
|
|
|
|
Amount
outstanding at year-end |
$ |
253 |
|
|
$ |
— |
|
|
Weighted
average interest rate at year-end |
0.05 |
% |
|
— |
% |
|
Maximum
month-end balance during the year |
$ |
277 |
|
|
$ |
— |
|
|
Average
balance outstanding during the year |
211 |
|
|
— |
|
|
Weighted
average interest rate during the year |
0.07 |
% |
|
— |
% |
|
December 31,
2012 |
|
|
|
|
Amount
outstanding at year-end |
$ |
87 |
|
|
$ |
23 |
|
|
Weighted
average interest rate at year-end |
0.11 |
% |
|
— |
% |
|
Maximum
month-end balance during the year |
$ |
87 |
|
|
$ |
23 |
|
|
Average
balance outstanding during the year |
76 |
|
|
— |
|
|
Weighted
average interest rate during the year |
0.12 |
% |
|
— |
% |
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
NOTE
12 - MEDIUM- AND
LONG-TERM DEBT
Medium- and long-term debt is
summarized as follows:
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
|
|
|
December
31 |
2014 |
|
2013 |
|
Parent
company |
|
|
|
|
Subordinated
notes: |
|
|
|
|
4.80%
subordinated notes due 2015 (a) |
$ |
304 |
|
|
$ |
318 |
|
|
3.80%
subordinated notes due 2026 (a) |
259 |
|
|
— |
|
|
Medium-term
notes: |
|
|
|
|
3.00%
notes due 2015 |
300 |
|
|
299 |
|
|
2.125%
notes due 2019 (a) |
349 |
|
|
— |
|
|
Total
parent company |
1,212 |
|
|
617 |
|
|
Subsidiaries |
|
|
|
|
Subordinated
notes: |
|
|
|
|
5.70%
subordinated notes due 2014 (a) |
— |
|
|
255 |
|
|
8.375%
subordinated notes called 2014 |
— |
|
|
183 |
|
|
5.75%
subordinated notes due 2016 (a) |
670 |
|
|
681 |
|
|
5.20%
subordinated notes due 2017 (a) |
548 |
|
|
566 |
|
|
7.875%
subordinated notes due 2026 (a) |
227 |
|
|
213 |
|
|
Total
subordinated notes |
1,445 |
|
|
1,898 |
|
|
Federal
Home Loan Bank advances: |
|
|
|
|
Floating-rate
based on LIBOR indices due 2014 |
— |
|
|
1,000 |
|
|
Other
notes: |
|
|
|
|
6.0%
- 6.4% fixed-rate notes due 2013 to 2020 |
22 |
|
|
28 |
|
|
Total
subsidiaries |
1,467 |
|
|
2,926 |
|
|
Total
medium- and long-term debt |
$ |
2,679 |
|
|
$ |
3,543 |
|
|
|
|
(a) |
The
carrying value of medium- and long-term debt has been adjusted to reflect
the gain attributable to the risk hedged with interest rate
swaps. |
Subordinated notes with remaining
maturities greater than one year qualify as Tier 2 capital.
The Bank is a member of the FHLB,
which provides short- and long-term funding to its members through advances
collateralized by real-estate related assets. Actual borrowing capacity is
contingent upon the amount of collateral available to be pledged to the FHLB.
At December 31,
2014, $14 billion
of real estate-related loans were pledged to the FHLB as blanket collateral for
potential future borrowings of approximately $6
billion.
In the second quarter 2014, the
Corporation issued $350 million
of 2.125%
senior notes due 2019,
which were swapped to a floating rate based on six-month LIBOR. Proceeds were
used for general corporate purposes.
In the third quarter 2014, the
Corporation issued $250 million
of 3.80% subordinated notes due
2026, which were swapped to a
floating rate based on six-month LIBOR. Proceeds were used for general
corporate purposes. Also in the third quarter 2014, the Corporation exercised its
option to redeem, at par, $150
million of
8.375% subordinated notes, originally
due in 2024.
A gain of $32
million was
recognized on the early redemption, primarily from the recognition of the
unamortized value of a related, previously terminated interest rate swap.
At December 31,
2014, the principal
maturities of medium- and long-term debt were as follows:
|
|
|
|
|
|
(in
millions) |
|
|
Years
Ending December 31 |
|
|
2015 |
$ |
606 |
|
|
2016 |
650 |
|
|
2017 |
500 |
|
|
2018 |
2 |
|
|
2019 |
357 |
|
|
Thereafter |
407 |
|
|
Total |
$ |
2,522 |
|
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
NOTE
13 -
SHAREHOLDERS’ EQUITY
The Federal Reserve completed its
2014 Comprehensive Capital Analysis
and Review (CCAR) of the Corporation's 2014-2015 capital plan in March
2014 and did not object to the
capital distributions contemplated in the plan. The capital plan provides for up
to $236
million of equity
repurchases for the four-quarter period ending March 31, 2015. At December 31,
2014, up to
$59
million remained
available for share repurchases under the capital plan.
Repurchases of common stock under
the share repurchase program authorized by the Board of Directors of the
Corporation in 2010 totaled 5.2
million shares at an
average price paid of $47.91 per share, 7.4
million shares at an
average price paid of $38.63 per share and 10.1 million
shares at an average price paid of $30.21 per share in 2014, 2013 and 2012, respectively. There is no
expiration date for the Corporation's share repurchase program.
At December 31,
2014, the
Corporation had 13.2
million warrants
outstanding to purchase 11.2
million common
shares at a weighted-average exercise price of $29.45. Outstanding warrants were
exercisable at the date of grant and expire in 2018. Approximately 361 thousand
shares of common stock were issued upon exercise of warrants in 2014.
There were no
warrant exercises in 2013
and 2012.
At December 31,
2014, the
Corporation had 11.2
million shares of
common stock reserved for warrant exercises, 14.7
million shares of
common stock reserved for stock option exercises and restricted stock unit
vesting and 2.1
million shares of
restricted stock outstanding to employees and directors under share-based
compensation plans.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
NOTE
14 - ACCUMULATED
OTHER COMPREHENSIVE LOSS
The following table presents a
reconciliation of the changes in the components of accumulated other
comprehensive loss and details the components of other comprehensive income
(loss) for the years
ended December 31, 2014,
2013 and 2012, including the amount of income
tax expense (benefit) allocated to each component of other comprehensive income
(loss).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
|
|
|
|
|
Years
Ended December 31 |
2014 |
|
2013 |
|
2012 |
|
Accumulated
net unrealized gains (losses) on investment securities
available-for-sale: |
|
|
|
|
|
|
Balance
at beginning of period, net of tax |
$ |
(68 |
) |
|
$ |
150 |
|
|
$ |
129 |
|
|
|
|
|
|
|
|
|
Net
unrealized holding gains (losses) arising during the
period |
166 |
|
|
(343 |
) |
|
48 |
|
|
Less:
Provision (benefit) for income taxes |
60 |
|
|
(126 |
) |
|
18 |
|
|
Net
unrealized holding gains (losses) arising during the period, net of
tax |
106 |
|
|
(217 |
) |
|
30 |
|
|
Less: |
|
|
|
|
|
|
Net
realized gains included in net securities gains |
1 |
|
|
1 |
|
|
14 |
|
|
Less:
Provision for income taxes |
— |
|
|
— |
|
|
5 |
|
|
Reclassification adjustment
for net securities gains included in net income, net of
tax |
1 |
|
|
1 |
|
|
9 |
|
|
Change in net unrealized
gains (losses) on investment securities available-for-sale, net of
tax |
105 |
|
|
(218 |
) |
|
21 |
|
|
Balance
at end of period, net of tax |
$ |
37 |
|
|
$ |
(68 |
) |
|
$ |
150 |
|
|
|
|
|
|
|
|
|
Accumulated
defined benefit pension and other postretirement plans
adjustment: |
|
|
|
|
|
|
Balance
at beginning of period, net of tax |
$ |
(323 |
) |
|
$ |
(563 |
) |
|
$ |
(485 |
) |
|
|
|
|
|
|
|
|
Actuarial (loss) gain
arising during the period |
(240 |
) |
|
286 |
|
|
(192 |
) |
|
Less: (Benefit) provision
for income taxes |
(87 |
) |
|
103 |
|
|
(70 |
) |
|
Net defined benefit pension
and other postretirement adjustment arising during the period, net of
tax |
(153 |
) |
|
183 |
|
|
(122 |
) |
|
Amounts recognized in
salaries and benefits expense: |
|
|
|
|
|
|
Amortization of actuarial
net loss |
39 |
|
|
89 |
|
|
62 |
|
|
Amortization of prior
service cost |
3 |
|
|
2 |
|
|
3 |
|
|
Amortization of transition
obligation |
— |
|
|
— |
|
|
4 |
|
|
Total
amounts recognized in salaries and benefits expense |
42 |
|
|
91 |
|
|
69 |
|
|
Less: Benefit for income
taxes |
15 |
|
|
34 |
|
|
25 |
|
|
Adjustment for amounts
recognized as components of net periodic benefit cost during the period,
net of tax |
27 |
|
|
57 |
|
|
44 |
|
|
Change in defined benefit
pension and other postretirement plans adjustment, net of
tax |
(126 |
) |
|
240 |
|
|
(78 |
) |
|
Balance
at end of period, net of tax |
$ |
(449 |
) |
|
$ |
(323 |
) |
|
$ |
(563 |
) |
|
Total
accumulated other comprehensive loss at end of period, net of
tax |
$ |
(412 |
) |
|
$ |
(391 |
) |
|
$ |
(413 |
) |
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
NOTE
15 - NET INCOME
PER COMMON SHARE
Basic and diluted net income per
common share are presented in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions, except per share data) |
|
|
|
|
|
|
Years
Ended December 31 |
2014 |
|
2013 |
|
2012 |
|
Basic
and diluted |
|
|
|
|
|
|
Net
income |
$ |
593 |
|
|
$ |
541 |
|
|
$ |
521 |
|
|
Less
income allocated to participating securities |
7 |
|
|
8 |
|
|
6 |
|
|
Net
income attributable to common shares |
$ |
586 |
|
|
$ |
533 |
|
|
$ |
515 |
|
|
|
|
|
|
|
|
|
Basic
average common shares |
179 |
|
|
183 |
|
|
191 |
|
|
|
|
|
|
|
|
|
Basic
net income per common share |
$ |
3.28 |
|
|
$ |
2.92 |
|
|
$ |
2.68 |
|
|
|
|
|
|
|
|
|
Basic
average common shares |
179 |
|
|
183 |
|
|
191 |
|
|
Dilutive
common stock equivalents: |
|
|
|
|
|
|
Net
effect of the assumed exercise of stock options |
2 |
|
|
1 |
|
|
1 |
|
|
Net
effect of the assumed exercise of warrants |
4 |
|
|
3 |
|
|
— |
|
|
Diluted
average common shares |
185 |
|
|
187 |
|
|
192 |
|
|
|
|
|
|
|
|
|
Diluted
net income per common share |
$ |
3.16 |
|
|
$ |
2.85 |
|
|
$ |
2.67 |
|
The following average shares
related to outstanding options and warrants to purchase shares of common stock
were not included in the computation of diluted net income per common share
because the prices of the options and warrants were greater than the average
market price of common shares for the period.
|
|
|
|
|
|
|
|
(shares
in millions) |
|
|
|
|
|
|
Years
Ended December 31 |
2014 |
|
2013 |
|
2012 |
|
Average
outstanding options |
7.2 |
|
10.8 |
|
16.0 |
|
Range
of exercise prices |
$47.24
- 61.94 |
|
$34.78
- $61.94 |
|
$29.81
- $64.50 |
|
Average
outstanding warrants |
— |
|
— |
|
0.3 |
|
Exercise
price |
— |
|
— |
|
$30.36 |
NOTE
16 - SHARE-BASED
COMPENSATION
Share-based compensation expense
is charged to “salaries and benefits” expense on the consolidated statements of
income. The components of share-based compensation expense for all share-based
compensation plans and related tax benefits are as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
|
|
|
|
|
Years
Ended December 31 |
2014 |
|
2013 |
|
2012 |
|
Total
share-based compensation expense |
$ |
38 |
|
|
$ |
35 |
|
|
$ |
37 |
|
|
Related
tax benefits recognized in net income |
$ |
14 |
|
|
$ |
13 |
|
|
$ |
13 |
|
The following table summarizes
unrecognized compensation expense for all share-based plans:
|
|
|
|
|
|
(dollar
amounts in millions) |
December 31,
2014 |
|
Total
unrecognized share-based compensation expense |
$ |
53 |
|
|
Weighted-average
expected recognition period (in years) |
2.7 |
|
The Corporation has share-based
compensation plans under which it awards shares of restricted stock and
restricted stock units to key executive officers, directors and key personnel,
and stock options to executive officers and key personnel of the Corporation and
its subsidiaries. Restricted stock vests over periods ranging from three years to five years, restricted stock units
vest over periods ranging from one year to four years, and stock options vest
over periods ranging from one year to four years. The maturity of each
option is determined at the date of grant; however, no options may be exercised
later than ten years from the date of grant. The options may have restrictions
regarding exercisability. The plans originally provided for a grant of up to
17.9
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
million common shares, plus shares under
certain plans that are forfeited, expire or are canceled. At December 31,
2014, 9.0 million
shares were available for grant.
The Corporation used a binomial
model to value stock options granted in the periods presented. Option valuation
models require several inputs, including the expected stock price volatility,
and changes in input assumptions can materially affect the fair value estimates.
The model used may not necessarily provide a reliable single measure of the fair
value of employee and director stock options. The risk-free interest rate
assumption used in the binomial option-pricing model as outlined in the table
below was based on the federal ten-year treasury interest rate. The expected
dividend yield was based on the historical and projected dividend yield patterns
of the Corporation’s common shares. Expected volatility assumptions considered
both the historical volatility of the Corporation’s common stock over a ten-year
period and implied volatility based on actively traded options on the
Corporation’s common stock with pricing terms and trade dates similar to the
stock options granted.
The estimated weighted-average
grant-date fair value per option and the underlying binomial option-pricing
model assumptions are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
Ended December 31 |
2014 |
|
2013 |
|
2012 |
|
Weighted-average
grant-date fair value per option |
$ |
13.21 |
|
|
$ |
9.07 |
|
|
$ |
8.63 |
|
|
Weighted-average
assumptions: |
|
|
|
|
|
|
Risk-free interest
rates |
2.95 |
% |
|
1.94 |
% |
|
2.16 |
% |
|
Expected dividend
yield |
3.00 |
|
|
3.00 |
|
|
3.00 |
|
|
Expected
volatility factors of the market price of
Comerica
common stock |
31 |
|
|
34 |
|
|
39 |
|
|
Expected
option life (in years) |
5.8 |
|
|
6.4 |
|
|
6.1 |
|
A summary of the Corporation’s
stock option activity and related information for the year ended December 31,
2014
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
|
Number
of
Options
(in thousands) |
|
Exercise Price
per Share |
|
Remaining
Contractual
Term
(in years) |
|
Aggregate
Intrinsic Value
(in millions) |
|
Outstanding-January
1, 2014 |
16,795 |
|
|
$ |
43.52 |
|
|
|
|
|
|
Granted |
883 |
|
|
49.51 |
|
|
|
|
|
|
Forfeited
or expired |
(2,066 |
) |
|
52.22 |
|
|
|
|
|
|
Exercised |
(1,609 |
) |
|
34.47 |
|
|
|
|
|
|
Outstanding-December
31, 2014 |
14,003 |
|
|
44.28 |
|
|
4.1 |
|
|
$ |
97 |
|
|
Outstanding, net of
expected forfeitures-December 31, 2014 |
13,708 |
|
|
44.43 |
|
|
4.0 |
|
|
94 |
|
|
Exercisable-December
31, 2014 |
10,835 |
|
|
46.28 |
|
|
3.0 |
|
|
65 |
|
The aggregate intrinsic value of
outstanding options shown in the table above represents the total pretax
intrinsic value at December 31,
2014, based on the
Corporation’s closing stock price of $46.84 at December 31,
2014.
The total intrinsic value of
stock options exercised was $23
million,
$14
million and
$2
million for the
years ended December 31,
2014, 2013 and 2012, respectively.
A summary of the Corporation’s
restricted stock activity and related information for the year ended
December 31,
2014
follows:
|
|
|
|
|
|
|
|
|
|
Number of
Shares
(in thousands) |
|
Weighted-Average
Grant-Date
Fair
Value per Share |
|
Outstanding-January
1, 2014 |
2,479 |
|
|
$ |
31.78 |
|
|
Granted |
325 |
|
|
49.51 |
|
|
Forfeited |
(44 |
) |
|
34.83 |
|
|
Vested |
(620 |
) |
|
28.41 |
|
|
Outstanding-December
31, 2014 |
2,140 |
|
|
$ |
35.38 |
|
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
The total fair value of
restricted stock awards that fully vested during the years ended December 31,
2014, 2013 and 2012 was $18
million,
$10
million and
$16
million,
respectively.
A summary of the Corporation's
restricted stock unit activity and related information for the year ended
December 31,
2014
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service-Based
Units |
|
Performance-Based
Units |
|
|
Number of
Units
(in thousands) |
|
Weighted-Average
Grant-Date
Fair
Value per Share |
|
Number of
Units
(in thousands) |
|
Weighted-Average
Grant-Date
Fair
Value per Share |
|
Outstanding-January
1, 2014 |
331 |
|
|
$ |
34.01 |
|
|
124 |
|
|
$ |
33.79 |
|
|
Granted |
15 |
|
|
49.30 |
|
|
240 |
|
|
49.51 |
|
|
Converted |
41 |
|
|
33.79 |
|
|
(41 |
) |
|
33.79 |
|
|
Vested |
— |
|
|
— |
|
|
(4 |
) |
|
49.51 |
|
|
Outstanding-December
31, 2014 |
387 |
|
|
34.58 |
|
|
319 |
|
|
45.44 |
|
The Corporation expects to
satisfy the exercise of stock options, the vesting of restricted stock units and
future grants of restricted stock by issuing shares of common stock out of
treasury. At December 31,
2014, the
Corporation held 49.1 million
shares in treasury.
For further information on the
Corporation’s share-based compensation plans, refer to Note 1.
NOTE
17 - EMPLOYEE
BENEFIT PLANS
Defined
Benefit Pension and Postretirement Benefit Plans
The Corporation has a qualified
and a non-qualified defined benefit pension plan, which together provide
benefits for substantially all full-time employees hired before January 1,
2007 who continue to meet the eligibility requirements of the plans. Salaries
and benefits expense included defined benefit pension expense of $39 million,
$86
million and
$75
million in the years
ended December 31,
2014, 2013
and 2012, respectively, for the plans.
Benefits under the defined benefit plans are based primarily on years of
service, age and compensation during the five highest paid consecutive calendar
years occurring during the last ten years before retirement.
The Corporation’s postretirement
benefit plan continues to provide postretirement health care and life insurance
benefits for retirees as of December 31, 1992. The plan also provides
certain postretirement health care and life insurance benefits for a limited
number of retirees who retired prior to January 1, 2000. For all other
employees hired prior to January 1, 2000, a nominal benefit is provided.
Employees hired on or after January 1, 2000 and prior to January 1, 2007
are eligible to participate in the plan on a full contributory basis until
Medicare-eligible. Employees hired on or after January 1, 2007 are not eligible
to participate in the plan. The Corporation funds the pre-1992 retiree plan
benefits with bank-owned life insurance. Employee benefits expense included
postretirement benefit expense of $1
million,
$2
million and
$6
million in the years
ended December 31,
2014, 2013 and 2012, respectively, for the
plan.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
The following table sets forth
reconciliations of plan assets and the projected benefit obligation, the
weighted-average assumptions used to determine year-end benefit obligations, and
the amounts recognized in accumulated other comprehensive income (loss) for the
Corporation’s defined benefit pension plans and postretirement benefit plan at
December 31,
2014 and
2013. The Corporation used a
measurement date of December 31,
2014 for these
plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined
Benefit Pension Plans |
|
|
|
|
|
|
Qualified |
|
Non-Qualified |
|
Postretirement
Benefit Plan |
|
(dollar
amounts in millions) |
2014 |
|
2013 |
|
2014 |
|
2013 |
|
2014 |
|
2013 |
|
Change
in fair value of plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of plan assets at January 1 |
$ |
2,035 |
|
|
|
$ |
1,955 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
67 |
|
|
$ |
72 |
|
|
Actual
return on plan assets |
278 |
|
|
|
136 |
|
|
— |
|
|
— |
|
|
3 |
|
|
(2 |
) |
|
Employer
contributions |
350 |
|
|
|
— |
|
|
— |
|
|
— |
|
|
2 |
|
|
3 |
|
|
Benefits
paid |
(122 |
) |
(a) |
|
(56 |
) |
|
— |
|
|
— |
|
|
(5 |
) |
|
(6 |
) |
|
Fair
value of plan assets at December 31 |
$ |
2,541 |
|
|
|
$ |
2,035 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
67 |
|
|
$ |
67 |
|
|
Change
in projected benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected
benefit obligation at January 1 |
$ |
1,731 |
|
|
|
$ |
1,897 |
|
|
$ |
195 |
|
|
$ |
245 |
|
|
$ |
69 |
|
|
$ |
79 |
|
|
Service
cost |
29 |
|
|
|
37 |
|
|
3 |
|
|
4 |
|
|
— |
|
|
— |
|
|
Interest
cost |
88 |
|
|
|
80 |
|
|
10 |
|
|
9 |
|
|
3 |
|
|
3 |
|
|
Actuarial
(gain) loss |
344 |
|
|
|
(260 |
) |
|
37 |
|
|
(21 |
) |
|
6 |
|
|
(7 |
) |
|
Benefits
paid |
(122 |
) |
(a) |
|
(56 |
) |
|
(10 |
) |
|
(9 |
) |
|
(5 |
) |
|
(6 |
) |
|
Transfer
between plans |
— |
|
|
|
33 |
|
|
— |
|
|
(33 |
) |
|
— |
|
|
— |
|
|
Projected
benefit obligation at December 31 |
$ |
2,070 |
|
|
|
$ |
1,731 |
|
|
$ |
235 |
|
|
$ |
195 |
|
|
$ |
73 |
|
|
$ |
69 |
|
|
Accumulated
benefit obligation |
$ |
1,905 |
|
|
|
$ |
1,598 |
|
|
$ |
203 |
|
|
$ |
163 |
|
|
$ |
73 |
|
|
$ |
69 |
|
|
Funded
status at December 31 (b) (c) |
$ |
471 |
|
|
|
$ |
304 |
|
|
$ |
(235 |
) |
|
$ |
(195 |
) |
|
$ |
(6 |
) |
|
$ |
(2 |
) |
|
Weighted-average
assumptions used: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate |
4.28 |
% |
|
|
5.17 |
% |
|
4.28 |
% |
|
5.17 |
% |
|
3.99 |
% |
|
4.59 |
% |
|
Rate
of compensation increase |
3.75 |
|
|
|
4.00 |
|
|
3.75 |
|
|
4.00 |
|
|
n/a |
|
|
n/a |
|
|
Healthcare
cost trend rate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
trend rate assumed for next year |
n/a |
|
|
|
n/a |
|
|
n/a |
|
|
n/a |
|
|
7.00 |
|
|
7.50 |
|
|
Rate to which the cost
trend rate is assumed to decline (the ultimate trend rate) |
n/a |
|
|
|
n/a |
|
|
n/a |
|
|
n/a |
|
|
5.00 |
|
|
5.00 |
|
|
Year when rate reaches the
ultimate trend rate |
n/a |
|
|
|
n/a |
|
|
n/a |
|
|
n/a |
|
|
2026 |
|
|
2033 |
|
|
Amounts recognized in
accumulated other comprehensive income (loss) before income
taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
actuarial loss |
$ |
(568 |
) |
|
|
$ |
(403 |
) |
|
$ |
(104 |
) |
|
$ |
(73 |
) |
|
$ |
(27 |
) |
|
$ |
(23 |
) |
|
Prior
service (cost) credit |
(25 |
) |
|
|
(31 |
) |
|
25 |
|
|
28 |
|
|
(3 |
) |
|
(3 |
) |
|
Balance
at December 31 |
$ |
(593 |
) |
|
|
$ |
(434 |
) |
|
$ |
(79 |
) |
|
$ |
(45 |
) |
|
$ |
(30 |
) |
|
$ |
(26 |
) |
|
|
|
(a) |
Includes
$63
million
in benefit payments made to certain terminated vested eligible
participants who elected to receive lump-sum settlements during the fourth
quarter of 2014. |
|
|
|
(b) |
Based on
projected benefit obligation for defined benefit pension plans and
accumulated benefit obligation for postretirement benefit
plan. |
|
|
|
(c) |
The
Corporation recognizes the overfunded and underfunded status of the plans
in “accrued income and other assets” and “accrued expenses and other
liabilities,” respectively, on the consolidated balance
sheets. |
n/a - not
applicable
The accumulated benefit
obligation exceeded the fair value of plan assets for the non-qualified defined
benefit pension plan and the postretirement benefit plan at December 31,
2014 and
2013. The following table details the
changes in plan assets and benefit obligations recognized in other comprehensive
income (loss) for the year ended December 31,
2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined
Benefit Pension Plans |
|
|
|
|
|
(in
millions) |
Qualified |
|
Non-Qualified |
|
Postretirement
Benefit Plan |
|
Total |
|
Actuarial
loss arising during the period |
$ |
(196 |
) |
|
$ |
(38 |
) |
|
$ |
(6 |
) |
|
$ |
(240 |
) |
|
Amortization
of net actuarial loss |
31 |
|
|
7 |
|
|
1 |
|
|
39 |
|
|
Amortization
of prior service cost (credit) |
6 |
|
|
(4 |
) |
|
1 |
|
|
3 |
|
|
Total
recognized in other comprehensive income (loss) |
$ |
(159 |
) |
|
$ |
(35 |
) |
|
$ |
(4 |
) |
|
$ |
(198 |
) |
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
Components of net periodic
defined benefit cost and postretirement benefit cost, the actual return on plan
assets and the weighted-average assumptions used were as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined
Benefit Pension Plans |
|
(dollar
amounts in millions) |
Qualified |
|
Non-Qualified |
|
Years
Ended December 31 |
2014 |
|
2013 |
|
2012 |
|
2014 |
|
2013 |
|
2012 |
|
Service
cost |
$ |
29 |
|
|
$ |
37 |
|
|
$ |
33 |
|
|
$ |
3 |
|
|
$ |
4 |
|
|
$ |
4 |
|
|
Interest
cost |
88 |
|
|
80 |
|
|
79 |
|
|
10 |
|
|
9 |
|
|
10 |
|
|
Expected
return on plan assets |
(131 |
) |
|
(132 |
) |
|
(114 |
) |
|
— |
|
|
— |
|
|
— |
|
|
Amortization
of prior service cost (credit) |
6 |
|
|
7 |
|
|
4 |
|
|
(4 |
) |
|
(6 |
) |
|
(2 |
) |
|
Amortization
of net loss |
31 |
|
|
76 |
|
|
54 |
|
|
7 |
|
|
11 |
|
|
7 |
|
|
Net
periodic defined benefit cost |
$ |
23 |
|
|
$ |
68 |
|
|
$ |
56 |
|
|
$ |
16 |
|
|
$ |
18 |
|
|
$ |
19 |
|
|
Actual
return on plan assets |
$ |
278 |
|
|
$ |
136 |
|
|
$ |
199 |
|
|
n/a |
|
|
n/a |
|
|
n/a |
|
|
Actual
rate of return on plan assets |
13.88 |
% |
|
7.05 |
% |
|
13.33 |
% |
|
n/a |
|
|
n/a |
|
|
n/a |
|
|
Weighted-average
assumptions used: |
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate |
5.17 |
% |
|
4.20 |
% |
|
4.99 |
% |
|
5.17 |
% |
|
4.20 |
% |
|
4.99 |
% |
|
Expected
long-term return on plan assets |
6.75 |
|
|
7.25 |
|
|
7.50 |
|
|
n/a |
|
|
n/a |
|
|
n/a |
|
|
Rate
of compensation increase |
4.00 |
|
|
4.00 |
|
|
4.00 |
|
|
4.00 |
|
|
4.00 |
|
|
4.00 |
|
n/a
- not applicable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollar
amounts in millions) |
Postretirement Benefit Plan |
|
Years
Ended December 31 |
2014 |
|
2013 |
|
2012 |
|
Interest
cost |
$ |
3 |
|
|
$ |
3 |
|
|
$ |
3 |
|
|
Expected
return on plan assets |
(4 |
) |
|
(4 |
) |
|
(3 |
) |
|
Amortization
of transition obligation |
— |
|
|
— |
|
|
4 |
|
|
Amortization
of prior service cost |
1 |
|
|
1 |
|
|
1 |
|
|
Amortization
of net loss |
1 |
|
|
2 |
|
|
1 |
|
|
Net
periodic postretirement benefit cost |
$ |
1 |
|
|
$ |
2 |
|
|
$ |
6 |
|
|
Actual
return on plan assets |
$ |
3 |
|
|
$ |
(2 |
) |
|
$ |
4 |
|
|
Actual
rate of return on plan assets |
4.62 |
% |
|
(2.29 |
)% |
|
6.39 |
% |
|
Weighted-average
assumptions used: |
|
|
|
|
|
|
Discount
rate |
4.59 |
% |
|
3.81 |
% |
|
4.55 |
% |
|
Expected
long-term return on plan assets |
5.00 |
|
|
5.00 |
|
|
5.00 |
|
|
Healthcare
cost trend rate: |
|
|
|
|
|
|
Cost
trend rate assumed |
7.50 |
|
|
8.00 |
|
|
8.00 |
|
|
Rate
to which the cost trend rate is assumed to decline (the ultimate trend
rate) |
5.00 |
|
|
5.00 |
|
|
5.00 |
|
|
Year
that the rate reaches the ultimate trend rate |
2033 |
|
|
2033 |
|
|
2032 |
|
The expected long-term rate of
return of plan assets is the average rate of return expected to be realized on
funds invested or expected to be invested over the life of the plan, which has
an estimated average life of approximately 15 years as of December 31,
2014. The expected
long-term rate of return on plan assets is set after considering both long-term
returns in the general market and long-term returns experienced by the assets in
the plan. The returns on the various asset categories are blended to derive one
long-term rate of return. The Corporation reviews its pension plan assumptions
on an annual basis with its actuarial consultants to determine if assumptions
are reasonable and adjusts the assumptions to reflect changes in future
expectations.
The estimated portion of balances
remaining in accumulated other comprehensive income (loss) that are expected to
be recognized as a component of net periodic benefit cost in the year ended
December 31,
2015 are as
follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Pension Plans |
|
|
|
|
|
(in
millions) |
Qualified |
|
Non-Qualified |
|
Postretirement
Benefit
Plan |
|
Total |
|
Net
loss |
$ |
57 |
|
|
$ |
10 |
|
|
$ |
1 |
|
|
$ |
68 |
|
|
Prior
service cost (credit) |
4 |
|
|
(4 |
) |
|
1 |
|
|
1 |
|
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
Assumed healthcare cost trend
rates have a significant effect on the amounts reported for the postretirement
benefit plan. A one-percentage-point change in 2014 assumed healthcare and
prescription drug cost trend rates would have the following
effects.
|
|
|
|
|
|
|
|
|
|
|
One-Percentage-Point |
|
(in
millions) |
Increase |
|
Decrease |
|
Effect
on postretirement benefit obligation |
$ |
4 |
|
|
$ |
(4 |
) |
|
Effect
on total service and interest cost |
— |
|
|
— |
|
Plan
Assets
The Corporation’s overall
investment goals for the qualified defined benefit pension plan are to maintain
a portfolio of assets of appropriate liquidity and diversification; to generate
investment returns (net of operating costs) that are reasonably anticipated to
maintain the plan’s fully funded status or to reduce a funding deficit, after
taking into account various factors, including reasonably anticipated future
contributions and expense and the interest rate sensitivity of the plan’s assets
relative to that of the plan’s liabilities; and to generate investment returns
(net of operating costs) that meet or exceed a customized benchmark as defined
in the plan investment policy. Derivative instruments are permissible for
hedging and transactional efficiency, but only to the extent that the derivative
use enhances the efficient execution of the plan’s investment policy. The plan
does not directly invest in securities issued by the Corporation and its
subsidiaries. The Corporation’s target allocations for plan investments are
36
percent to
56
percent equity
securities and 44
percent to
64
percent fixed
income, including cash. Equity securities include collective investment and
mutual funds and common stock. Fixed income securities include U.S. Treasury and
other U.S. government agency securities, mortgage-backed securities, corporate
bonds and notes, municipal bonds, collateralized mortgage obligations and money
market funds.
Fair
Value Measurements
The Corporation’s qualified
defined benefit pension plan utilizes fair value measurements to record fair
value adjustments and to determine fair value disclosures. The Corporation’s
qualified benefit pension plan categorizes investments recorded at fair value
into a three-level hierarchy, based on the markets in which the investment are
traded and the reliability of the assumptions used to determine fair value.
Refer to Note 1
for a description of the three-level hierarchy.
Following is a description of the
valuation methodologies and key inputs used to measure the fair value of the
Corporation’s qualified defined benefit pension plan investments, including an
indication of the level of the fair value hierarchy in which the investments are
classified.
Collective
investment funds
Fair value measurement is based
upon the net asset value (NAV) provided by the administrator of the fund.
Collective investment fund NAVs are based primarily on observable inputs,
generally the quoted prices for underlying assets owned by the fund, and are
included in Level 2 of the fair value hierarchy.
Mutual
funds
Fair value measurement is based
upon the NAV provided by the administrator of the fund. Mutual fund NAVs are
quoted in an active market exchange, such as the New York Stock Exchange, and
are included in Level 1 of the fair value hierarchy.
Common
stock
Fair value measurement is based
upon the closing price quoted in an active market exchange, such as the New York
Stock Exchange. Level 1 common stock includes domestic and foreign stock and
real estate investment trusts.
U.S.
Treasury and other U.S. government agency securities
Fair value measurement is based
upon quoted prices in an active market exchange, such as the New York Stock
Exchange. Level 1 securities include U.S. Treasury securities that are traded by
dealers or brokers in active over-the-counter markets.
Corporate
and municipal bonds and notes
Fair value measurement is based
upon quoted prices of securities with similar characteristics or pricing models
based on observable market data inputs, primarily interest rates, spreads and
prepayment information. Level 2 securities include corporate bonds, municipal
bonds, foreign bonds and foreign notes.
Collateralized
mortgage obligations
Fair value measurement is based
upon independent pricing models or other model-based valuation techniques such
as the present value of future cash flows, adjusted for the security's credit
rating, prepayment assumptions and other factors, such as credit loss and
liquidity assumptions, and are included in Level 2 of the fair value
hierarchy.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
Private
placements
Fair value is measured using the
NAV provided by fund management as quoted prices in active markets are not
available. Management considers additional discounts to the provided NAV for
market and credit risk. Private placements are included in Level 3 of the fair
value hierarchy.
Securities
purchased under agreements to resell
Fair value measurement is based
upon independent pricing models or other model-based valuation techniques such
as the present value of future cash flows, and is included in Level 2 of the
fair value hierarchy.
Fair
Values
The fair values of the
Corporation’s qualified defined benefit pension plan investments measured at
fair value on a recurring basis at December 31,
2014 and
2013, by asset category and level
within the fair value hierarchy, are detailed in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
December 31,
2014 |
|
|
|
|
|
|
|
|
Cash
equivalent securities: |
|
|
|
|
|
|
|
|
Mutual
funds |
$ |
390 |
|
|
$ |
390 |
|
|
$ |
— |
|
|
$ |
— |
|
|
Equity
securities: |
|
|
|
|
|
|
|
|
Collective
investment funds |
466 |
|
|
— |
|
|
466 |
|
|
— |
|
|
Mutual
funds |
76 |
|
|
76 |
|
|
— |
|
|
— |
|
|
Common
stock |
499 |
|
|
499 |
|
|
— |
|
|
— |
|
|
Fixed
income securities: |
|
|
|
|
|
|
|
|
U.S.
Treasury and other U.S. government agency securities |
359 |
|
|
359 |
|
|
— |
|
|
— |
|
|
Corporate
and municipal bonds and notes |
659 |
|
|
— |
|
|
659 |
|
|
— |
|
|
Collateralized
mortgage obligations |
9 |
|
|
— |
|
|
9 |
|
|
— |
|
|
Private
placements |
73 |
|
|
|
|
|
— |
|
|
73 |
|
|
Total
investments at fair value |
$ |
2,531 |
|
|
$ |
1,324 |
|
|
$ |
1,134 |
|
|
$ |
73 |
|
|
December 31,
2013 |
|
|
|
|
|
|
|
|
Cash
equivalent securities: |
|
|
|
|
|
|
|
|
Mutual
funds |
$ |
23 |
|
|
$ |
23 |
|
|
$ |
— |
|
|
$ |
— |
|
|
Equity
securities: |
|
|
|
|
|
|
|
|
Collective
investment funds |
463 |
|
|
— |
|
|
463 |
|
|
— |
|
|
Mutual
funds |
73 |
|
|
73 |
|
|
— |
|
|
— |
|
|
Common
stock |
483 |
|
|
483 |
|
|
— |
|
|
— |
|
|
Fixed
income securities: |
|
|
|
|
|
|
|
|
U.S.
Treasury and other U.S. government agency securities |
329 |
|
|
329 |
|
|
— |
|
|
— |
|
|
Corporate
and municipal bonds and notes |
496 |
|
|
— |
|
|
496 |
|
|
— |
|
|
Collateralized
mortgage obligations |
4 |
|
|
— |
|
|
4 |
|
|
— |
|
|
U.S.
government agency mortgage-backed securities |
2 |
|
|
— |
|
|
2 |
|
|
— |
|
|
Mutual
funds |
113 |
|
|
113 |
|
|
— |
|
|
— |
|
|
Private
placements |
36 |
|
|
|
|
|
— |
|
|
36 |
|
|
Other
assets: |
|
|
|
|
|
|
|
|
Securities
purchased under agreements to resell |
6 |
|
|
— |
|
|
6 |
|
|
— |
|
|
Total
investments at fair value |
$ |
2,028 |
|
|
$ |
1,021 |
|
|
$ |
971 |
|
|
$ |
36 |
|
The table below provides a
summary of changes in the Corporation’s qualified defined benefit pension plan’s
Level 3 investments measured at fair value on a recurring basis for the years
ended December 31,
2014 and
2013.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Gains (Losses) |
|
|
|
|
|
|
|
(in
millions) |
Balance at
Beginning
of
Period |
|
Realized |
|
Unrealized |
|
Purchases |
|
Sales |
|
Balance at
End of Period |
|
Year
Ended December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
Private
placements |
$ |
36 |
|
|
$ |
1 |
|
|
$ |
4 |
|
|
$ |
60 |
|
|
$ |
(28 |
) |
|
$ |
73 |
|
|
Year
Ended December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
Private
placements |
$ |
30 |
|
|
$ |
— |
|
|
$ |
(4 |
) |
|
$ |
46 |
|
|
$ |
(36 |
) |
|
$ |
36 |
|
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
There were no assets in the non-qualified
defined benefit pension plan at December 31,
2014 and
2013. The postretirement benefit plan
is fully invested in bank-owned life insurance policies. The fair value of
bank-owned life insurance policies is based on the cash surrender values of the
policies as reported by the insurance companies and is classified in Level 2 of
the fair value hierarchy.
Cash
Flows
The Corporation currently expects
to make no employer contributions to the
qualified and non-qualified defined benefit pension plans and postretirement
benefit plan for the year ended December 31,
2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
Future Benefit Payments |
|
(in
millions)
Years
Ended December 31 |
Qualified
Defined Benefit
Pension
Plan |
|
Non-Qualified
Defined Benefit
Pension
Plan |
|
Postretirement
Benefit Plan (a) |
|
2015 |
$ |
67 |
|
|
$ |
11 |
|
|
$ |
6 |
|
|
2016 |
72 |
|
|
11 |
|
|
6 |
|
|
2017 |
78 |
|
|
12 |
|
|
6 |
|
|
2018 |
84 |
|
|
12 |
|
|
6 |
|
|
2019 |
89 |
|
|
13 |
|
|
6 |
|
|
2020
- 2024 |
529 |
|
|
70 |
|
|
25 |
|
|
|
|
(a) |
Estimated
benefit payments in the postretirement benefit plan are net of estimated
Medicare subsidies. |
Defined
Contribution Plans
Substantially all of the
Corporation’s employees are eligible to participate in the Corporation’s
principal defined contribution plan (a 401(k) plan). Under this plan, the
Corporation makes core matching cash contributions of 100
percent of the first
4
percent of qualified
earnings contributed by employees (up to the current IRS compensation limit),
invested based on employee investment elections. Employee benefits expense
included expense for the plan of $22
million,
$21
million and
$20
million for the
years ended December 31,
2014, 2013 and 2012, respectively.
The Corporation also provides a
profit sharing plan for the benefit of substantially all employees who work at
least 1,000 hours in a plan year and are not accruing a benefit in the defined
benefit pension plan. Under the profit sharing plan, the Corporation makes an
annual discretionary allocation to the individual account of each eligible
employee ranging from 3
percent to
8
percent of annual
compensation, determined based on combined age and years of service. The
allocations are invested based on employee investment elections. The employee
fully vests in the defined contribution pension plan after three years of
service, at age 65 if still employed, or in the event of death while an
employee. Before an employee is eligible to participate, the plan requires the
equivalent of one year of service. The Corporation recognized $10 million,
$7
million and
$7
million in employee
benefits expense for this plan for the years ended December 31,
2014, 2013 and 2012, respectively.
Deferred
Compensation Plans
The Corporation offers optional
deferred compensation plans under which certain employees may make an
irrevocable election to defer incentive compensation and/or a portion of base
salary until retirement or separation from the Corporation. The employee may
direct deferred compensation into one or more deemed investment options.
Although not required to do so, the Corporation invests actual funds into the
deemed investments as directed by employees, resulting in a deferred
compensation asset, recorded in “other short-term investments” on the
consolidated balance sheets that offsets the liability to employees under the
plan, recorded in “accrued expenses and other liabilities.” The earnings from
the deferred compensation asset are recorded in “interest on short-term
investments” and “other noninterest income” and the related change in the
liability to employees under the plan is recorded in “salaries” expense on the
consolidated statements of income.
NOTE
18 - INCOME
TAXES AND TAX-RELATED ITEMS
The provision for income taxes is
calculated as the sum of income taxes due for the current year and deferred
taxes. Income taxes due for the current year is computed by applying federal and
state tax statutes to current year taxable income. Deferred taxes arise from
temporary differences between the income tax basis and financial accounting
basis of assets and liabilities. Tax-related interest and penalties and foreign
taxes are then added to the tax provision.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
The current and deferred
components of the provision for income taxes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
|
|
|
|
|
December
31 |
2014 |
|
2013 |
|
2012 |
|
Current: |
|
|
|
|
|
|
Federal |
$ |
127 |
|
|
$ |
242 |
|
|
$ |
59 |
|
|
Foreign |
6 |
|
|
6 |
|
|
6 |
|
|
State
and local |
14 |
|
|
17 |
|
|
18 |
|
|
Total
current |
147 |
|
|
265 |
|
|
83 |
|
|
Deferred: |
|
|
|
|
|
|
Federal |
123 |
|
|
(20 |
) |
|
152 |
|
|
State
and local |
7 |
|
|
— |
|
|
6 |
|
|
Total
deferred |
130 |
|
|
(20 |
) |
|
158 |
|
|
Total |
$ |
277 |
|
|
$ |
245 |
|
|
$ |
241 |
|
Income before income taxes of
$870
million for the year
ended December 31,
2014 included
$32
million of
foreign-source income.
There was no income tax provision on
securities transactions for the years ended December 31,
2014 and
December 31,
2013 and an income
tax provision of $4
million on
securities transactions for the year ended December 31,
2012.
The provision for income taxes
does not reflect the tax effects of unrealized gains and losses on investment
securities available-for-sale or the change in defined benefit pension and other
postretirement plans adjustment included in accumulated other comprehensive
loss. Refer to Note 14 for additional information on
accumulated other comprehensive loss.
The income tax effects of
transactions under the Corporation's share-based compensation plans reduced both
shareholders’ equity and deferred tax assets by $11
million,
$5
million and
$16
million in 2014,
2013, and 2012 respectively.
A reconciliation of expected
income tax expense at the federal statutory rate to the Corporation’s provision
for income taxes and effective tax rate follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollar
amounts in millions) |
2014 |
|
2013 |
|
2012 |
|
Years
Ended December 31 |
Amount |
|
Rate |
|
Amount |
|
Rate |
|
Amount |
|
Rate |
|
Tax
based on federal statutory rate |
$ |
305 |
|
|
35.0 |
% |
|
$ |
275 |
|
|
35.0 |
% |
|
$ |
267 |
|
|
35.0 |
% |
|
State
income taxes |
13 |
|
|
1.5 |
|
|
11 |
|
|
1.4 |
|
|
14 |
|
|
1.9 |
|
|
Affordable
housing and historic credits |
(24 |
) |
|
(2.8 |
) |
|
(21 |
) |
|
(2.6 |
) |
|
(22 |
) |
|
(2.9 |
) |
|
Bank-owned
life insurance |
(15 |
) |
|
(1.7 |
) |
|
(15 |
) |
|
(1.9 |
) |
|
(15 |
) |
|
(2.0 |
) |
|
Other
changes in unrecognized tax benefits |
2 |
|
|
0.2 |
|
|
(2 |
) |
|
(0.2 |
) |
|
1 |
|
|
0.2 |
|
|
Tax-related
interest and penalties |
(3 |
) |
|
(0.3 |
) |
|
(1 |
) |
|
(0.1 |
) |
|
— |
|
|
— |
|
|
Other |
(1 |
) |
|
(0.1 |
) |
|
(2 |
) |
|
(0.4 |
) |
|
(4 |
) |
|
(0.6 |
) |
|
Provision
for income taxes |
$ |
277 |
|
|
31.8 |
% |
|
$ |
245 |
|
|
31.2 |
% |
|
$ |
241 |
|
|
31.6 |
% |
Included in “accrued expenses and
other liabilities” on the consolidated balance sheets was a $2
million liability
for tax-related interest and penalties at both December 31,
2014 and
December 31,
2013.
In the ordinary course of
business, the Corporation enters into certain transactions that have tax
consequences. From time to time, the Internal Revenue Service (IRS) may review
and/or challenge specific interpretive tax positions taken by the Corporation
with respect to those transactions. The Corporation believes that its tax
returns were filed based upon applicable statutes, regulations and case law in
effect at the time of the transactions. The IRS, an administrative authority or
a court, if presented with the transactions, could disagree with the
Corporation’s interpretation of the tax law.
A reconciliation of the beginning
and ending amount of net unrecognized tax benefits follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
2014 |
|
2013 |
|
2012 |
|
Balance
at January 1 |
$ |
11 |
|
|
$ |
42 |
|
|
$ |
20 |
|
|
Increases
as a result of tax positions taken during a prior period |
3 |
|
|
— |
|
|
33 |
|
|
Decrease
related to settlements with tax authorities |
— |
|
|
(31 |
) |
|
(11 |
) |
|
Balance
at December 31 |
$ |
14 |
|
|
$ |
11 |
|
|
$ |
42 |
|
The Corporation anticipates that
it is reasonably possible that settlements with tax authorities will result in a
$9
million decrease in
net unrecognized tax benefits within the next twelve months.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
After consideration of the
effect of the federal tax benefit available on unrecognized state tax benefits,
the total amount of unrecognized tax benefits that, if recognized, would affect
the Corporation’s effective tax rate was approximately $2
million at both
December 31,
2014 and
December 31,
2013.
The following tax years for
significant jurisdictions remain subject to examination as of December 31,
2014:
|
|
|
|
Jurisdiction |
Tax
Years |
|
Federal |
2010-2013 |
|
California |
2002-2013 |
Based on current knowledge and
probability assessment of various potential outcomes, the Corporation believes
that current tax reserves are adequate, and the amount of any potential
incremental liability arising is not expected to have a material adverse effect
on the Corporation’s consolidated financial condition or results of operations.
Probabilities and outcomes are reviewed as events unfold, and adjustments to the
reserves are made when necessary.
The principal components of
deferred tax assets and liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
|
|
|
December
31 |
2014 |
|
2013 |
|
Deferred
tax assets: |
|
|
|
|
Allowance
for loan losses |
$ |
208 |
|
|
$ |
209 |
|
|
Deferred
compensation |
123 |
|
|
131 |
|
|
Defined
benefit plans |
— |
|
|
2 |
|
|
Loan
purchase accounting adjustments |
5 |
|
|
17 |
|
|
Deferred
loan origination fees and costs |
28 |
|
|
28 |
|
|
Net
unrealized losses on investment securities
available-for-sale |
— |
|
|
39 |
|
|
Other
temporary differences, net |
44 |
|
|
75 |
|
|
Total
deferred tax assets |
408 |
|
|
501 |
|
|
Deferred
tax liabilities: |
|
|
|
|
Lease
financing transactions |
(206 |
) |
|
(226 |
) |
|
Defined
benefit plans |
(38 |
) |
|
— |
|
|
Net
unrealized gains on investment securities
available-for-sale |
(21 |
) |
|
— |
|
|
Allowance
for depreciation |
(13 |
) |
|
(18 |
) |
|
Total
deferred tax liabilities |
(278 |
) |
|
(244 |
) |
|
Net
deferred tax asset |
$ |
130 |
|
|
$ |
257 |
|
At December 31,
2014 and
December 31,
2013, the
Corporation determined that no valuation allowance was
necessary on federal or state deferred tax assets. This determination was based
on sufficient taxable income in the carry-back period and projected future
reversals of existing taxable temporary differences to absorb the deferred tax
assets. The remaining deferred tax assets will be absorbed by future reversals
of existing taxable temporary differences. For further information on the
Corporation’s valuation policy for deferred tax assets, refer to Note
1.
NOTE
19 -
TRANSACTIONS WITH RELATED PARTIES
The Corporation’s banking
subsidiaries had, and expect to have in the future, transactions with the
Corporation’s directors and executive officers, companies with which these
individuals are associated, and certain related individuals. Such transactions
were made in the ordinary course of business and included extensions of credit,
leases and professional services. With respect to extensions of credit, all were
made on substantially the same terms, including interest rates and collateral,
as those prevailing at the same time for comparable transactions with other
customers and did not, in management’s opinion, involve more than normal risk of
collectibility or present other unfavorable features. The aggregate amount of
loans attributable to persons who were related parties at December 31,
2014, totaled
$105
million at the
beginning of 2014
and $79
million at the end
of 2014. During 2014, new loans to related parties
aggregated $544
million and
repayments totaled $570 million.
NOTE
20 - REGULATORY
CAPITAL AND RESERVE REQUIREMENTS
Reserves required to be
maintained and/or deposited with the FRB are classified in interest-bearing
deposits with banks. These reserve balances vary, depending on the level of
customer deposits in the Corporation’s banking subsidiaries. The average
required reserve balances were $430
million and
$397
million for the
years ended December
31, 2014 and
2013, respectively.
Banking regulations limit the
transfer of assets in the form of dividends, loans or advances from the bank
subsidiaries to the parent company. Under the most restrictive of these
regulations, the aggregate amount of dividends which can be paid to the
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
parent company, with prior
approval from bank regulatory agencies, approximated $375
million at
January 1, 2015, plus 2015 net profits. Substantially all
the assets of the Corporation’s banking subsidiaries are restricted from
transfer to the parent company of the Corporation in the form of loans or
advances.
The Corporation’s subsidiary
banks declared dividends of $380
million,
$480
million and
$497
million in
2014, 2013 and 2012, respectively.
The Corporation and its U.S.
banking subsidiaries are subject to various regulatory capital requirements
administered by federal and state banking agencies. Quantitative measures
established by regulation to ensure capital adequacy require the maintenance of
minimum amounts and ratios of Tier 1 and total capital (as defined in the
regulations) to average and risk-weighted assets. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Corporation’s financial statements. At December 31,
2014 and
2013, the Corporation and its U.S.
banking subsidiaries exceeded the ratios required for an institution to be
considered “well capitalized” (total risk-based capital, Tier 1 risk-based
capital and leverage ratios greater than 10
percent,
6
percent and
5
percent,
respectively). There have been no conditions or events since December 31,
2014 that management
believes have changed the capital adequacy classification of the Corporation or
its U.S. banking subsidiaries.
The following is a summary of the
capital position of the Corporation and Comerica Bank, its principal banking
subsidiary.
|
|
|
|
|
|
|
|
|
|
(dollar
amounts in millions) |
Comerica
Incorporated
(Consolidated) |
|
Comerica
Bank |
|
December 31,
2014 |
|
|
|
|
Tier
1 capital (minimum-$2.7 billion (Consolidated)) |
7,169 |
|
|
7,051 |
|
|
Total
capital (minimum-$5.5 billion (Consolidated)) |
8,543 |
|
|
8,175 |
|
|
Risk-weighted
assets |
68,273 |
|
|
68,037 |
|
|
Average
assets (fourth quarter) |
69,284 |
|
|
69,092 |
|
|
Tier
1 capital to risk-weighted assets (minimum-4.0%) |
10.50 |
% |
|
10.36 |
% |
|
Total
capital to risk-weighted assets (minimum-8.0%) |
12.51 |
|
|
12.02 |
|
|
Tier
1 capital to average assets (minimum-3.0%) |
10.35 |
|
|
10.20 |
|
|
December 31,
2013 |
|
|
|
|
Tier
1 capital (minimum-$2.6 billion (Consolidated)) |
$ |
6,895 |
|
|
$ |
6,803 |
|
|
Total
capital (minimum-$5.2 billion (Consolidated)) |
8,491 |
|
|
8,340 |
|
|
Risk-weighted
assets |
64,825 |
|
|
64,629 |
|
|
Average
assets (fourth quarter) |
64,017 |
|
|
63,836 |
|
|
Tier
1 capital to risk-weighted assets (minimum-4.0%) |
10.64 |
% |
|
10.53 |
% |
|
Total
capital to risk-weighted assets (minimum-8.0%) |
13.10 |
|
|
12.90 |
|
|
Tier
1 capital to average assets (minimum-3.0%) |
10.77 |
|
|
10.66 |
|
NOTE
21 - CONTINGENT
LIABILITIES
Legal
Proceedings
As previously reported in the
Corporation's Form 10-K for the year ended December 31, 2013 and updated in
Forms 10-Q for the quarterly periods ended March 31, 2014, June 30, 2014 and
September 30, 2014, Comerica Bank, a wholly owned subsidiary of the Corporation,
was sued in November 2011 as a third-party defendant in Butte
Local Development v. Masters Group v. Comerica Bank (“the
case”), for lender liability. The case was tried in January 2014, in the
Montana Second District Judicial Court for Silver Bow County in Butte, Montana
("the court"). On January 17, 2014, a jury awarded Masters
$52
million against the
Bank. Following the jury’s decision on the case, the Corporation increased its
reserve for litigation-related expense, effective as of December 31, 2013, to
$52
million. The
Corporation increased its reserve related to the case to $54
million in
March
2014, to include
additional attorney's fees and costs awarded by the court.
The Corporation believes that it
has meritorious defenses and appellate issues for this litigation and has
appealed to the Montana Supreme Court, the sole appellate court for the state of
Montana. The Montana Supreme Court heard oral arguments in September 2014 and
will be rendering a written decision on the appeal.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
The Corporation and certain of
its subsidiaries are subject to various other pending or threatened legal
proceedings arising out of the normal course of business or operations. The
Corporation believes it has meritorious defenses to the claims asserted against
it in its other currently outstanding legal proceedings and, with respect to
such legal proceedings, intends to continue to defend itself vigorously,
litigating or settling cases according to management’s judgment as to what is in
the best interests of the Corporation and its shareholders. Settlement may
result from the Corporation's determination that it may be more prudent
financially to settle, rather than litigate, and should not be regarded as an
admission of liability. On at least a quarterly basis, the Corporation assesses
its potential liabilities and contingencies in connection with outstanding legal
proceedings utilizing the latest information available. On a case-by-case basis,
reserves are established for those legal claims for which it is probable that a
loss will be incurred either as a result of a settlement or judgment, and the
amount of such loss can be reasonably estimated. The actual costs of resolving
these claims may be substantially higher or lower than the amounts reserved.
Based on current knowledge, and after consultation with legal counsel,
management believes that current reserves are adequate, and the amount of any
incremental liability arising from these matters is not expected to have a
material adverse effect on the Corporation’s consolidated financial condition,
consolidated results of operations or consolidated cash flows. Legal fees of
$24 million for each of the years ended
December 31,
2014 and
2013, and $31
million for the year
ended December 31,
2012, were included
in "other noninterest expenses" on the consolidated statements of income.
For matters where a loss is not
probable, the Corporation has not established legal reserves. The Corporation
believes the estimate of the aggregate range of reasonably possible losses, in
excess of reserves established, for all legal proceedings in which it is
involved is from zero
to approximately $36
million at
December 31,
2014. This estimated
aggregate range of reasonably possible losses is based upon currently available
information for those proceedings in which the Corporation is involved, taking
into account the Corporation’s best estimate of such losses for those cases for
which such estimate can be made. For certain cases, the Corporation does not
believe that an estimate can currently be made. The Corporation’s estimate
involves significant judgment, given the varying stages of the proceedings
(including the fact that many are currently in preliminary stages), the
existence in certain proceedings of multiple defendants (including the
Corporation) whose share of liability has yet to be determined, the numerous
yet-unresolved issues in many of the proceedings (including issues regarding
class certification and the scope of many of the claims) and the attendant
uncertainty of the various potential outcomes of such proceedings. Accordingly,
the Corporation’s estimate will change from time to time, and actual losses may
be more or less than the current estimate.
In the event of unexpected future
developments, it is possible that the ultimate resolution of these matters, if
unfavorable, may be material to the Corporation's consolidated financial
condition, consolidated results of operations or consolidated cash
flows.
For information regarding income
tax contingencies, refer to Note 18.
NOTE
22 - BUSINESS
SEGMENT INFORMATION
The Corporation has strategically
aligned its operations into three major business segments: the
Business Bank, the Retail Bank and Wealth Management. These business
segments are differentiated based on the type of customer and the related
products and services provided. In addition to the three major business segments, the
Finance Division is also reported as a segment. Business segment results are
produced by the Corporation’s internal management accounting system. This system
measures financial results based on the internal business unit structure of the
Corporation. The performance of the business segments is not comparable with the
Corporation's consolidated results and is not necessarily comparable with
similar information for any other financial institution. Additionally, because
of the interrelationships of the various segments, the information presented is
not indicative of how the segments would perform if they operated as independent
entities. The management accounting system assigns balance sheet and income
statement items to each business segment using certain methodologies, which are
regularly reviewed and refined. From time to time, the Corporation may make
reclassifications among the segments to more appropriately reflect management's
current view of the segments, and methodologies may be modified as the
management accounting system is enhanced and changes occur in the organizational
structure and/or product lines. For comparability purposes, amounts in all
periods are based on business unit structure and methodologies in effect at
December 31,
2014.
Net interest income for each
business segment is the total of interest income generated by earning assets
less interest expense on interest-bearing liabilities plus the net impact from
associated internal funds transfer pricing (FTP) funding credits and
charges. The FTP methodology provides the business segments credits for
deposits and other funds provided and charges the business segments for loans
and other assets utilizing funds. This credit or charge is based on
matching stated or implied maturities for these assets and liabilities. The FTP
credit provided for deposits reflects the long-term value of deposits generated
based on their implied maturity. The FTP charge for funding assets reflects a
matched cost of funds based on the pricing and term characteristics of the
assets. For acquired loans and deposits, matched maturity funding is determined
based on origination date. Accordingly, the FTP process reflects the
transfer of interest rate risk exposures to the Treasury group within the
Finance segment, where such exposures are centrally managed. The allowance for
loan losses is allocated to the business segments based
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
on the methodology used to
estimate the consolidated allowance for loan losses described in Note 1. The
related provision for loan losses is assigned based on the amount necessary to
maintain an allowance for loan losses appropriate for each business segment.
Noninterest income and expenses directly attributable to a line of business are
assigned to that business segment. Direct expenses incurred by areas whose
services support the overall Corporation are allocated to the business segments
as follows: product processing expenditures are allocated based on standard unit
costs applied to actual volume measurements; administrative expenses are
allocated based on estimated time expended; and corporate overhead is assigned
50 percent based on the ratio of the business segment’s noninterest expenses to
total noninterest expenses incurred by all business segments and 50 percent
based on the ratio of the business segment’s attributed equity to total
attributed equity of all business segments. Equity is attributed based on
credit, operational and interest rate risks. Most of the equity attributed
relates to credit risk, which is determined based on the credit score and
expected remaining life of each loan, letter of credit and unused commitment
recorded in the business segments. Operational risk is allocated based on loans
and letters of credit, deposit balances, non-earning assets, trust assets under
management, certain noninterest income items, and the nature and extent of
expenses incurred by business units. Virtually all interest rate risk is
assigned to Finance, as are the Corporation’s hedging activities.
In 2014, the Corporation enhanced
the approach used to determine the standard reserve factors used in estimating
the allowance for credit losses, which had the effect of capturing certain
elements in the standard reserve component that had formerly been included in
the qualitative assessment. The impact of the change was largely neutral to the
total allowance for loan losses at June 30, 2014. However, because standard
reserves are allocated to the segments at the loan level, while qualitative
reserves are allocated at the portfolio level, the impact of the methodology
change on the allowance of each segment reflected the characteristics of the
individual loans within each segment's portfolio, causing segment reserves to
increase or decrease accordingly. As a result, the current year provision for
credit losses within each segment is not comparable to prior period
amounts.
In 2013, the Corporation changed
the method of assigning the allowance for loan losses to each business segment.
In 2012, national probability of default and loss given default statistics were
incorporated into the Corporation's allowance methodology. Each business segment
was assigned an allowance for loan losses based on market-specific standard
reserve factors applied to the loans in each segment, and the difference between
the total allowance required on a national basis and the market-specific
allowances was allocated based on the relative loan balances in each segment.
Effective 2013, each segment was assigned an allowance for loan losses by
applying national standard reserve factors to the loan balances in each segment
by risk rating distribution. This change was retroactively applied to 2012. Also
in 2013, the Corporation changed the method of allocating FDIC insurance expense
to the segments as well as certain noninterest income and expense associated
with commercial charge cards. The changes did not have a material impact on
segment operating results.
The following discussion provides
information about the activities of each business segment. A discussion of the
financial results and the factors impacting 2014 performance can be found in the
section entitled "Business Segments" in the financial review.
The Business Bank meets the needs
of middle market businesses, multinational corporations and governmental
entities by offering various products and services, including commercial loans
and lines of credit, deposits, cash management, capital market products,
international trade finance, letters of credit, foreign exchange management
services and loan syndication services.
The Retail Bank includes small
business banking and personal financial services, consisting of consumer
lending, consumer deposit gathering and mortgage loan origination. In addition
to a full range of financial services provided to small business customers, this
business segment offers a variety of consumer products, including deposit
accounts, installment loans, credit cards, student loans, home equity lines of
credit and residential mortgage loans.
Wealth Management offers
products and services consisting of fiduciary services, private banking,
retirement services, investment management and advisory services, investment
banking and brokerage services. This business segment also offers the sale of
annuity products, as well as life, disability and long-term care insurance
products.
The Finance segment includes the
Corporation’s securities portfolio and asset and liability management
activities. This segment is responsible for managing the Corporation’s funding,
liquidity and capital needs, performing interest sensitivity analysis and
executing various strategies to manage the Corporation’s exposure to liquidity,
interest rate risk and foreign exchange risk.
The Other category includes the
income and expense impact of equity and cash, tax benefits not assigned to
specific business segments, charges of an unusual or infrequent nature that are
not reflective of the normal operations of the business segments and
miscellaneous other expenses of a corporate nature.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
Business segment financial
results are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollar
amounts in millions) |
Business
Bank |
|
Retail
Bank |
|
Wealth
Management |
|
Finance |
|
Other |
|
Total |
|
Year
Ended December 31, 2014 |
|
Earnings
summary: |
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income (expense) (FTE) |
$ |
1,512 |
|
|
$ |
596 |
|
|
$ |
186 |
|
|
$ |
(662 |
) |
|
$ |
27 |
|
|
$ |
1,659 |
|
|
Provision
for credit losses |
53 |
|
|
(5 |
) |
|
(20 |
) |
|
— |
|
|
(1 |
) |
|
27 |
|
|
Noninterest
income |
376 |
|
|
167 |
|
|
259 |
|
|
60 |
|
|
6 |
|
|
868 |
|
|
Noninterest
expenses |
590 |
|
|
702 |
|
|
322 |
|
|
(21 |
) |
|
33 |
|
|
1,626 |
|
|
Provision
(benefit) for income taxes (FTE) |
429 |
|
|
23 |
|
|
52 |
|
|
(224 |
) |
|
1 |
|
|
281 |
|
|
Net
income (loss) |
$ |
816 |
|
|
$ |
43 |
|
|
$ |
91 |
|
|
$ |
(357 |
) |
|
$ |
— |
|
|
$ |
593 |
|
|
Net
credit-related charge-offs (recoveries) |
$ |
15 |
|
|
$ |
11 |
|
|
$ |
(1 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
average balances: |
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
$ |
37,332 |
|
|
$ |
6,092 |
|
|
$ |
4,997 |
|
|
$ |
11,361 |
|
|
$ |
6,556 |
|
|
$ |
66,338 |
|
|
Loans |
36,353 |
|
|
5,424 |
|
|
4,811 |
|
|
— |
|
|
— |
|
|
46,588 |
|
|
Deposits |
28,554 |
|
|
21,710 |
|
|
4,034 |
|
|
233 |
|
|
253 |
|
|
54,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statistical
data: |
|
|
|
|
|
|
|
|
|
|
|
|
Return
on average assets (a) |
2.18 |
% |
|
0.20 |
% |
|
1.83 |
% |
|
N/M |
|
|
N/M |
|
|
0.89 |
% |
|
Efficiency
ratio (b) |
31.24 |
|
|
91.75 |
|
|
72.54 |
|
|
N/M |
|
|
N/M |
|
|
64.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollar
amounts in millions) |
Business
Bank |
|
Retail
Bank |
|
Wealth
Management |
|
Finance |
|
Other |
|
Total |
|
Year
Ended December 31, 2013 |
|
Earnings
summary: |
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income (expense) (FTE) |
$ |
1,503 |
|
|
$ |
610 |
|
|
$ |
184 |
|
|
$ |
(653 |
) |
|
$ |
31 |
|
|
$ |
1,675 |
|
|
Provision
for credit losses |
54 |
|
|
13 |
|
|
(18 |
) |
|
— |
|
|
(3 |
) |
|
46 |
|
|
Noninterest
income |
382 |
|
|
175 |
|
|
252 |
|
|
61 |
|
|
12 |
|
|
882 |
|
|
Noninterest
expenses |
643 |
|
|
708 |
|
|
319 |
|
|
10 |
|
|
42 |
|
|
1,722 |
|
|
Provision
(benefit) for income taxes (FTE) |
403 |
|
|
22 |
|
|
48 |
|
|
(226 |
) |
|
1 |
|
|
248 |
|
|
Net
income (loss) |
$ |
785 |
|
|
$ |
42 |
|
|
$ |
87 |
|
|
$ |
(376 |
) |
|
$ |
3 |
|
|
$ |
541 |
|
|
Net
credit-related charge-offs |
$ |
43 |
|
|
$ |
22 |
|
|
$ |
8 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
average balances: |
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
$ |
35,529 |
|
|
$ |
5,974 |
|
|
$ |
4,807 |
|
|
$ |
11,422 |
|
|
$ |
6,201 |
|
|
$ |
63,933 |
|
|
Loans |
34,473 |
|
|
5,289 |
|
|
4,650 |
|
|
— |
|
|
— |
|
|
44,412 |
|
|
Deposits |
26,169 |
|
|
21,247 |
|
|
3,775 |
|
|
312 |
|
|
208 |
|
|
51,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statistical
data: |
|
|
|
|
|
|
|
|
|
|
|
|
Return
on average assets (a) |
2.21 |
% |
|
0.19 |
% |
|
1.82 |
% |
|
N/M |
|
|
N/M |
|
|
0.85 |
% |
|
Efficiency
ratio (b) |
34.13 |
|
|
89.95 |
|
|
73.14 |
|
|
N/M |
|
|
N/M |
|
|
67.32 |
|
(Table
continues on following page)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollar
amounts in millions) |
Business
Bank |
|
Retail
Bank |
|
Wealth
Management |
|
Finance |
|
Other |
|
Total |
|
Year
Ended December 31, 2012 |
|
Earnings
summary: |
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income (expense) (FTE) |
$ |
1,517 |
|
|
$ |
647 |
|
|
$ |
187 |
|
|
$ |
(658 |
) |
|
$ |
38 |
|
|
$ |
1,731 |
|
|
Provision
for credit losses |
34 |
|
|
24 |
|
|
19 |
|
|
— |
|
|
2 |
|
|
79 |
|
|
Noninterest
income |
371 |
|
|
173 |
|
|
258 |
|
|
60 |
|
|
8 |
|
|
870 |
|
|
Noninterest
expenses |
602 |
|
|
723 |
|
|
320 |
|
|
12 |
|
|
100 |
|
|
1,757 |
|
|
Provision
(benefit) for income taxes (FTE) |
426 |
|
|
23 |
|
|
39 |
|
|
(228 |
) |
|
(16 |
) |
|
244 |
|
|
Net
income (loss) |
$ |
826 |
|
|
$ |
50 |
|
|
$ |
67 |
|
|
$ |
(382 |
) |
|
$ |
(40 |
) |
|
$ |
521 |
|
|
Net
credit-related charge-offs |
$ |
107 |
|
|
$ |
40 |
|
|
$ |
23 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
average balances: |
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
$ |
34,444 |
|
|
$ |
6,008 |
|
|
$ |
4,623 |
|
|
$ |
11,881 |
|
|
$ |
5,613 |
|
|
$ |
62,569 |
|
|
Loans |
33,470 |
|
|
5,308 |
|
|
4,528 |
|
|
— |
|
|
— |
|
|
43,306 |
|
|
Deposits |
24,837 |
|
|
20,623 |
|
|
3,680 |
|
|
206 |
|
|
187 |
|
|
49,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statistical
data: |
|
|
|
|
|
|
|
|
|
|
|
|
Return
on average assets (a) |
2.40 |
% |
|
0.23 |
% |
|
1.45 |
% |
|
N/M |
|
|
N/M |
|
|
0.83 |
% |
|
Efficiency
ratio (b) |
31.89 |
|
|
87.93 |
|
|
74.21 |
|
|
N/M |
|
|
N/M |
|
|
67.85 |
|
|
|
|
(a) |
Return
on average assets is calculated based on the greater of average assets or
average liabilities and attributed
equity. |
(b) Noninterest
expenses as a percentage of the sum of net interest income (FTE) and noninterest
income excluding net securities gains.
FTE
– Fully Taxable Equivalent
N/M
– not meaningful
The Corporation operates in
three primary markets - Texas,
California, and Michigan, as well as in Arizona and Florida, with select
businesses operating in several other states, and in Canada and Mexico. The
Corporation produces market segment results for the Corporation’s three primary geographic markets as
well as Other Markets. Other Markets includes Florida, Arizona, the
International Finance division and businesses with a national perspective. The
Finance & Other category includes the Finance segment and the Other category
as previously described. Market segment results are provided as supplemental
information to the business segment results and may not meet all operating
segment criteria as set forth in GAAP. For comparability purposes, amounts in
all periods are based on market segments and methodologies in effect at
December 31,
2014.
A discussion of the financial
results and the factors impacting performance can be found in the section
entitled "Market Segments" in the financial review.
Market segment financial results
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollar
amounts in millions) |
Michigan |
|
California |
|
Texas |
|
Other
Markets |
|
Finance
& Other |
|
Total |
|
Year
Ended December 31, 2014 |
|
Earnings
summary: |
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
(expense) (FTE) |
$ |
718 |
|
|
$ |
722 |
|
|
$ |
542 |
|
|
$ |
312 |
|
|
$ |
(635 |
) |
|
$ |
1,659 |
|
|
Provision
for credit losses |
(32 |
) |
|
28 |
|
|
50 |
|
|
(18 |
) |
|
(1 |
) |
|
27 |
|
|
Noninterest
income |
360 |
|
|
147 |
|
|
129 |
|
|
166 |
|
|
66 |
|
|
868 |
|
|
Noninterest
expenses |
644 |
|
|
401 |
|
|
369 |
|
|
200 |
|
|
12 |
|
|
1,626 |
|
|
Provision (benefit) for
income taxes (FTE) |
169 |
|
|
168 |
|
|
92 |
|
|
75 |
|
|
(223 |
) |
|
281 |
|
|
Net
income (loss) |
$ |
297 |
|
|
$ |
272 |
|
|
$ |
160 |
|
|
$ |
221 |
|
|
$ |
(357 |
) |
|
$ |
593 |
|
|
Net
credit-related charge-offs (recoveries) |
$ |
8 |
|
|
$ |
22 |
|
|
$ |
9 |
|
|
$ |
(14 |
) |
|
$ |
— |
|
|
$ |
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
average balances: |
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
$ |
13,749 |
|
|
$ |
15,667 |
|
|
$ |
11,645 |
|
|
$ |
7,360 |
|
|
$ |
17,917 |
|
|
$ |
66,338 |
|
|
Loans |
13,336 |
|
|
15,390 |
|
|
10,954 |
|
|
6,908 |
|
|
— |
|
|
46,588 |
|
|
Deposits |
21,023 |
|
|
16,142 |
|
|
10,764 |
|
|
6,369 |
|
|
486 |
|
|
54,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statistical
data: |
|
|
|
|
|
|
|
|
|
|
|
|
Return
on average assets (a) |
1.35 |
% |
|
1.58 |
% |
|
1.33 |
% |
|
3.00 |
% |
|
N/M |
|
|
0.89 |
% |
|
Efficiency
ratio (b) |
59.73 |
|
|
46.09 |
|
|
54.84 |
|
|
42.01 |
|
|
N/M |
|
|
64.31 |
|
(Table
continues on following page)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollar
amounts in millions) |
Michigan |
|
California |
|
Texas |
|
Other
Markets |
|
Finance
& Other |
|
Total |
|
Year
Ended December 31, 2013 |
|
Earnings
summary: |
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
(expense) (FTE) |
$ |
751 |
|
|
$ |
692 |
|
|
$ |
541 |
|
|
$ |
313 |
|
|
$ |
(622 |
) |
|
$ |
1,675 |
|
|
Provision
for credit losses |
(12 |
) |
|
18 |
|
|
35 |
|
|
8 |
|
|
(3 |
) |
|
46 |
|
|
Noninterest
income |
357 |
|
|
150 |
|
|
132 |
|
|
170 |
|
|
73 |
|
|
882 |
|
|
Noninterest
expenses |
714 |
|
|
396 |
|
|
363 |
|
|
197 |
|
|
52 |
|
|
1,722 |
|
|
Provision (benefit) for
income taxes (FTE) |
145 |
|
|
160 |
|
|
98 |
|
|
70 |
|
|
(225 |
) |
|
248 |
|
|
Net
income (loss) |
$ |
261 |
|
|
$ |
268 |
|
|
$ |
177 |
|
|
$ |
208 |
|
|
$ |
(373 |
) |
|
$ |
541 |
|
|
Net
credit-related charge-offs |
$ |
6 |
|
|
$ |
27 |
|
|
$ |
20 |
|
|
$ |
20 |
|
|
$ |
— |
|
|
$ |
73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
average balances: |
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
$ |
13,879 |
|
|
$ |
14,233 |
|
|
$ |
10,694 |
|
|
$ |
7,504 |
|
|
$ |
17,623 |
|
|
$ |
63,933 |
|
|
Loans |
13,461 |
|
|
13,978 |
|
|
9,989 |
|
|
6,984 |
|
|
— |
|
|
44,412 |
|
|
Deposits |
20,346 |
|
|
14,705 |
|
|
10,247 |
|
|
5,893 |
|
|
520 |
|
|
51,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statistical
data: |
|
|
|
|
|
|
|
|
|
|
|
|
Return
on average assets (a) |
1.22 |
% |
|
1.72 |
% |
|
1.54 |
% |
|
2.77 |
% |
|
N/M |
|
|
0.85 |
% |
|
Efficiency
ratio (b) |
64.38 |
|
|
47.07 |
|
|
53.86 |
|
|
40.72 |
|
|
N/M |
|
|
67.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollar
amounts in millions) |
Michigan |
|
California |
|
Texas |
|
Other
Markets |
|
Finance
& Other |
|
Total |
|
Year
Ended December 31, 2012 |
|
Earnings
summary: |
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income (expense) (FTE) |
$ |
777 |
|
|
$ |
692 |
|
|
$ |
564 |
|
|
$ |
318 |
|
|
$ |
(620 |
) |
|
$ |
1,731 |
|
|
Provision
for credit losses |
(30 |
) |
|
24 |
|
|
49 |
|
|
34 |
|
|
2 |
|
|
79 |
|
|
Noninterest
income |
385 |
|
|
136 |
|
|
124 |
|
|
157 |
|
|
68 |
|
|
870 |
|
|
Noninterest
expenses |
707 |
|
|
395 |
|
|
360 |
|
|
183 |
|
|
112 |
|
|
1,757 |
|
|
Provision
(benefit) for income taxes (FTE) |
170 |
|
|
156 |
|
|
98 |
|
|
64 |
|
|
(244 |
) |
|
244 |
|
|
Net
income (loss) |
$ |
315 |
|
|
$ |
253 |
|
|
$ |
181 |
|
|
$ |
194 |
|
|
$ |
(422 |
) |
|
$ |
521 |
|
|
Net
credit-related charge-offs |
$ |
41 |
|
|
$ |
47 |
|
|
$ |
22 |
|
|
$ |
60 |
|
|
$ |
— |
|
|
$ |
170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
average balances: |
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
$ |
13,921 |
|
|
$ |
12,988 |
|
|
$ |
10,307 |
|
|
$ |
7,859 |
|
|
$ |
17,494 |
|
|
$ |
62,569 |
|
|
Loans |
13,618 |
|
|
12,747 |
|
|
9,552 |
|
|
7,389 |
|
|
— |
|
|
43,306 |
|
|
Deposits |
19,573 |
|
|
14,568 |
|
|
10,040 |
|
|
4,959 |
|
|
393 |
|
|
49,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statistical
data: |
|
|
|
|
|
|
|
|
|
|
|
|
Return
on average assets (a) |
1.53 |
% |
|
1.63 |
% |
|
1.60 |
% |
|
2.47 |
% |
|
N/M |
|
|
0.83 |
% |
|
Efficiency
ratio (b) |
60.75 |
|
|
47.67 |
|
|
52.28 |
|
|
39.76 |
|
|
N/M |
|
|
67.85 |
|
|
|
|
(a) |
Return
on average assets is calculated based on the greater of average assets or
average liabilities and attributed
equity. |
(b) Noninterest
expenses as a percentage of the sum of net interest income (FTE) and noninterest
income excluding net securities gains.
FTE – Fully
Taxable Equivalent
N/M – not
meaningful
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
NOTE
23 - PARENT
COMPANY FINANCIAL STATEMENTS
BALANCE
SHEETS - COMERICA INCORPORATED
|
|
|
|
|
|
|
|
|
|
(in
millions, except share data) |
|
|
|
|
December
31 |
2014 |
|
2013 |
|
Assets |
|
|
|
|
Cash
and due from subsidiary bank |
$ |
— |
|
|
$ |
31 |
|
|
Short-term
investments with subsidiary bank |
1,133 |
|
|
482 |
|
|
Other
short-term investments |
94 |
|
|
96 |
|
|
Investment
in subsidiaries, principally banks |
7,411 |
|
|
7,171 |
|
|
Premises
and equipment |
2 |
|
|
4 |
|
|
Other
assets |
142 |
|
|
139 |
|
|
Total
assets |
$ |
8,782 |
|
|
$ |
7,923 |
|
|
Liabilities
and Shareholders’ Equity |
|
|
|
|
Medium-
and long-term debt |
$ |
1,212 |
|
|
$ |
617 |
|
|
Other
liabilities |
168 |
|
|
156 |
|
|
Total
liabilities |
1,380 |
|
|
773 |
|
|
Common
stock - $5 par value: |
|
|
|
|
Authorized
- 325,000,000 shares |
|
|
|
|
Issued
- 228,164,824 shares |
1,141 |
|
|
1,141 |
|
|
Capital
surplus |
2,188 |
|
|
2,179 |
|
|
Accumulated
other comprehensive loss |
(412 |
) |
|
(391 |
) |
|
Retained
earnings |
6,744 |
|
|
6,318 |
|
|
Less cost of common stock
in treasury - 49,146,225 shares at 12/31/14 and 45,860,786 shares at
12/31/13 |
(2,259 |
) |
|
(2,097 |
) |
|
Total
shareholders’ equity |
7,402 |
|
|
7,150 |
|
|
Total
liabilities and shareholders’ equity |
$ |
8,782 |
|
|
$ |
7,923 |
|
STATEMENTS
OF INCOME - COMERICA INCORPORATED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
|
|
|
|
|
Years
Ended December 31 |
2014 |
|
2013 |
|
2012 |
|
Income |
|
|
|
|
|
|
Income
from subsidiaries: |
|
|
|
|
|
|
Dividends
from subsidiaries |
$ |
384 |
|
|
$ |
490 |
|
|
$ |
505 |
|
|
Other
interest income |
1 |
|
|
1 |
|
|
1 |
|
|
Intercompany
management fees |
118 |
|
|
110 |
|
|
108 |
|
|
Other
noninterest income |
7 |
|
|
14 |
|
|
7 |
|
|
Total
income |
510 |
|
|
615 |
|
|
621 |
|
|
Expenses |
|
|
|
|
|
|
Interest
on medium- and long-term debt |
14 |
|
|
11 |
|
|
11 |
|
|
Salaries
and benefits expense |
114 |
|
|
118 |
|
|
114 |
|
|
Net
occupancy expense |
5 |
|
|
4 |
|
|
7 |
|
|
Equipment
expense |
1 |
|
|
1 |
|
|
1 |
|
|
Merger
and restructuring charges |
— |
|
|
— |
|
|
35 |
|
|
Other
noninterest expenses |
70 |
|
|
78 |
|
|
54 |
|
|
Total
expenses |
204 |
|
|
212 |
|
|
222 |
|
|
Income before benefit for
income taxes and equity in undistributed earnings of
subsidiaries |
306 |
|
|
403 |
|
|
399 |
|
|
Benefit
for income taxes |
(27 |
) |
|
(30 |
) |
|
(37 |
) |
|
Income
before equity in undistributed earnings of subsidiaries |
333 |
|
|
433 |
|
|
436 |
|
|
Equity
in undistributed earnings of subsidiaries, principally
banks |
260 |
|
|
108 |
|
|
85 |
|
|
Net
income |
593 |
|
|
541 |
|
|
521 |
|
|
Less
income allocated to participating securities |
7 |
|
|
8 |
|
|
6 |
|
|
Net
income attributable to common shares |
$ |
586 |
|
|
$ |
533 |
|
|
$ |
515 |
|
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
STATEMENTS
OF CASH FLOWS - COMERICA INCORPORATED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
|
|
|
|
|
Years
Ended December 31 |
2014 |
|
2013 |
|
2012 |
|
Operating
Activities |
|
|
|
|
|
|
Net
income |
$ |
593 |
|
|
$ |
541 |
|
|
$ |
521 |
|
|
Adjustments to reconcile
net income to net cash provided by operating activities: |
|
|
|
|
|
|
Undistributed
earnings of subsidiaries, principally banks |
(260 |
) |
|
(108 |
) |
|
(85 |
) |
|
Depreciation
and amortization |
1 |
|
|
1 |
|
|
1 |
|
|
Net
periodic defined benefit cost |
4 |
|
|
8 |
|
|
7 |
|
|
Share-based
compensation expense |
16 |
|
|
14 |
|
|
15 |
|
|
Provision
for deferred income taxes |
— |
|
|
3 |
|
|
2 |
|
|
Excess
tax benefits from share-based compensation arrangements |
(7 |
) |
|
(3 |
) |
|
(1 |
) |
|
Other,
net |
16 |
|
|
2 |
|
|
(8 |
) |
|
Net
cash provided by operating activities |
363 |
|
|
458 |
|
|
452 |
|
|
Investing
Activities |
|
|
|
|
|
|
Capital
transactions with subsidiaries |
— |
|
|
— |
|
|
(5 |
) |
|
Net
change in premises and equipment |
2 |
|
|
— |
|
|
(1 |
) |
|
Net
cash provided by (used in) investing activities |
2 |
|
|
— |
|
|
(6 |
) |
|
Financing
Activities |
|
|
|
|
|
|
Medium-
and long-term debt: |
|
|
|
|
|
|
Maturities
and redemptions |
— |
|
|
— |
|
|
(30 |
) |
|
Issuances |
596 |
|
|
— |
|
|
— |
|
|
Common
Stock: |
|
|
|
|
|
|
Repurchases |
(260 |
) |
|
(291 |
) |
|
(308 |
) |
|
Cash
dividends paid |
(137 |
) |
|
(123 |
) |
|
(97 |
) |
|
Issuances
of common stock under employee stock plans |
49 |
|
|
33 |
|
|
3 |
|
|
Excess
tax benefits from share-based compensation arrangements |
7 |
|
|
3 |
|
|
1 |
|
|
Net
cash provided by (used in) financing activities |
255 |
|
|
(378 |
) |
|
(431 |
) |
|
Net
increase in cash and cash equivalents |
620 |
|
|
80 |
|
|
15 |
|
|
Cash
and cash equivalents at beginning of period |
513 |
|
|
433 |
|
|
418 |
|
|
Cash
and cash equivalents at end of period |
$ |
1,133 |
|
|
$ |
513 |
|
|
$ |
433 |
|
|
Interest
paid |
$ |
12 |
|
|
$ |
11 |
|
|
$ |
12 |
|
|
Income
taxes recovered |
$ |
(33 |
) |
|
$ |
(27 |
) |
|
$ |
(46 |
) |
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Comerica
Incorporated and Subsidiaries
NOTE
24 - SUMMARY OF
QUARTERLY FINANCIAL STATEMENTS (UNAUDITED)
The following quarterly
information is unaudited. However, in the opinion of management, the information
reflects all adjustments, which are necessary for the fair presentation of the
results of operations, for the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
(in
millions, except per share data) |
Fourth
Quarter |
|
Third
Quarter |
|
Second
Quarter |
|
First
Quarter |
|
Interest
income |
$ |
438 |
|
|
$ |
436 |
|
|
$ |
441 |
|
|
$ |
435 |
|
|
Interest
expense |
23 |
|
|
22 |
|
|
25 |
|
|
25 |
|
|
Net
interest income |
415 |
|
|
414 |
|
|
416 |
|
|
410 |
|
|
Provision
for credit losses |
2 |
|
|
5 |
|
|
11 |
|
|
9 |
|
|
Net
securities (losses) gains |
— |
|
|
(1 |
) |
|
— |
|
|
1 |
|
|
Noninterest
income excluding net securities (losses) gains |
225 |
|
|
216 |
|
|
220 |
|
|
207 |
|
|
Noninterest
expenses |
419 |
|
|
397 |
|
|
404 |
|
|
406 |
|
|
Provision
for income taxes |
70 |
|
|
73 |
|
|
70 |
|
|
64 |
|
|
Net
income |
149 |
|
|
154 |
|
|
151 |
|
|
139 |
|
|
Less
income allocated to participating securities |
1 |
|
|
2 |
|
|
2 |
|
|
2 |
|
|
Net
income attributable to common shares |
$ |
148 |
|
|
$ |
152 |
|
|
$ |
149 |
|
|
$ |
137 |
|
|
Earnings
per common share: |
|
|
|
|
|
|
|
|
Basic |
$ |
0.83 |
|
|
$ |
0.85 |
|
|
$ |
0.83 |
|
|
$ |
0.76 |
|
|
Diluted |
0.80 |
|
|
0.82 |
|
|
0.80 |
|
|
0.73 |
|
|
Comprehensive
income |
54 |
|
|
141 |
|
|
172 |
|
|
205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
(in
millions, except per share data) |
Fourth
Quarter |
|
Third
Quarter |
|
Second
Quarter |
|
First
Quarter |
|
Interest
income |
$ |
456 |
|
|
$ |
439 |
|
|
$ |
443 |
|
|
$ |
446 |
|
|
Interest
expense |
26 |
|
|
27 |
|
|
29 |
|
|
30 |
|
|
Net
interest income |
430 |
|
|
412 |
|
|
414 |
|
|
416 |
|
|
Provision
for credit losses |
9 |
|
|
8 |
|
|
13 |
|
|
16 |
|
|
Net
securities gains (losses) |
— |
|
|
1 |
|
|
(2 |
) |
|
— |
|
|
Noninterest
income excluding net securities gains (losses) |
219 |
|
|
227 |
|
|
224 |
|
|
213 |
|
|
Noninterest
expenses |
473 |
|
|
417 |
|
|
416 |
|
|
416 |
|
|
Provision
for income taxes |
50 |
|
|
68 |
|
|
64 |
|
|
63 |
|
|
Net
income |
117 |
|
|
147 |
|
|
143 |
|
|
134 |
|
|
Less
income allocated to participating securities |
2 |
|
|
2 |
|
|
2 |
|
|
2 |
|
|
Net
income attributable to common shares |
$ |
115 |
|
|
$ |
145 |
|
|
$ |
141 |
|
|
$ |
132 |
|
|
Earnings
per common share: |
|
|
|
|
|
|
|
|
Basic |
$ |
0.64 |
|
|
$ |
0.80 |
|
|
$ |
0.77 |
|
|
$ |
0.71 |
|
|
Diluted |
0.62 |
|
|
0.78 |
|
|
0.76 |
|
|
0.70 |
|
|
Comprehensive
income |
267 |
|
|
144 |
|
|
15 |
|
|
137 |
|
REPORT OF
MANAGEMENT
The management of Comerica
Incorporated (the Corporation) is responsible for the accompanying consolidated
financial statements and all other financial information in this Annual Report.
The consolidated financial statements have been prepared in conformity with U.S.
generally accepted accounting principles and include amounts which of necessity
are based on management’s best estimates and judgments and give due
consideration to materiality. The other financial information herein is
consistent with that in the consolidated financial statements.
In meeting its responsibility for
the reliability of the consolidated financial statements, management develops
and maintains effective internal controls, including those over financial
reporting, as defined in the Securities and Exchange Act of 1934, as amended.
The Corporation’s internal control over financial reporting includes policies
and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Corporation; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
the consolidated financial statements in conformity with U.S. generally accepted
accounting principles, and that receipts and expenditures of the Corporation are
made only in accordance with authorizations of management and directors of the
Corporation; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of the
Corporation’s assets that could have a material effect on the consolidated
financial statements.
Management assessed, with
participation of the Corporation’s Chief Executive Officer and Chief Financial
Officer, internal control over financial reporting as it relates to the
Corporation’s consolidated financial statements presented in conformity with
U.S. generally accepted accounting principles as of December 31,
2014. The assessment
was based on criteria for effective internal control over financial reporting
described in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO
criteria). Based on this assessment, management determined that internal control
over financial reporting is effective as it relates to the Corporation’s
consolidated financial statements presented in conformity with U.S. generally
accepted accounting principles as of December 31,
2014.
Because of inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
The Corporation's internal
control over financial reporting as of December 31,
2014 has been
audited by Ernst & Young LLP, an independent registered public
accounting firm, as stated in their accompanying report.
The Corporation’s Board of
Directors oversees management’s internal control over financial reporting and
financial reporting responsibilities through its Audit Committee as well as
various other committees. The Audit Committee, which consists of directors who
are not officers or employees of the Corporation, meets regularly with
management, internal audit and the independent public accountants to assure that
the Audit Committee, management, internal auditors and the independent public
accountants are carrying out their responsibilities, and to review auditing,
internal control and financial reporting matters.
|
|
|
|
|
|
|
Ralph
W. Babb Jr. |
|
Karen
L. Parkhill |
|
Muneera
S. Carr |
|
Chairman,
President and |
|
Vice
Chairman and |
|
Executive
Vice President and |
|
Chief
Executive Officer |
|
Chief
Financial Officer |
|
Chief
Accounting Officer |
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and
Shareholders
Comerica
Incorporated
We have audited Comerica
Incorporated and subsidiaries' internal control over financial reporting as of
December 31,
2014, based on
criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) (the COSO criteria). Comerica Incorporated and subsidiaries'
management is responsible for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting included in the accompanying Report of
Management. Our responsibility is to express an opinion on the Corporation's
internal control over financial reporting based on our audit.
We conducted our audit in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on the assessed
risk, and performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company's internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles. A company's internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the company's
assets that could have a material effect on the financial
statements.
Because of its inherent
limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, Comerica
Incorporated and subsidiaries maintained, in all material respects, effective
internal control over financial reporting as of December 31,
2014, based
on the COSO criteria.
We also have audited, in
accordance with the standards of the Public Company Accounting Oversight Board
(United States), the 2014 consolidated financial
statements of Comerica Incorporated and subsidiaries and our report dated
February 17,
2015 expressed an
unqualified opinion thereon.
/s/ Ernst & Young
LLP
Dallas, TX
February 17,
2015
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and
Shareholders
Comerica
Incorporated
We have audited the accompanying
consolidated balance sheets of Comerica Incorporated and subsidiaries as of
December 31,
2014 and
2013, and the related consolidated
statements of income, comprehensive income, changes in shareholders' equity and
cash flows for each of the three years in the period ended December 31,
2014. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial
statements referred to above present fairly, in all material respects, the
consolidated financial position of Comerica Incorporated and subsidiaries at
December 31,
2014 and
2013, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31,
2014, in conformity
with U.S. generally accepted accounting principles.
We also have audited, in
accordance with the standards of the Public Company Accounting Oversight Board
(United States), Comerica Incorporated and subsidiaries’ internal control over
financial reporting as of December 31,
2014, based on
criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) and our report dated February 17,
2015 expressed an
unqualified opinion thereon.
/s/ Ernst & Young
LLP
Dallas, TX
February 17,
2015
HISTORICAL
REVIEW - AVERAGE BALANCE SHEETS
Comerica
Incorporated and Subsidiaries
CONSOLIDATED
FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions) |
|
|
|
|
|
|
|
|
|
|
Years
Ended December 31 |
2014 |
|
2013 |
|
2012 |
|
2011 |
|
2010 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks |
$ |
934 |
|
|
$ |
987 |
|
|
$ |
983 |
|
|
$ |
921 |
|
|
$ |
825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
deposits with banks |
5,513 |
|
|
4,930 |
|
|
4,128 |
|
|
3,746 |
|
|
3,197 |
|
|
Other
short-term investments |
109 |
|
|
112 |
|
|
134 |
|
|
129 |
|
|
126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities |
9,350 |
|
|
9,637 |
|
|
9,915 |
|
|
8,171 |
|
|
7,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
loans |
29,715 |
|
|
27,971 |
|
|
26,224 |
|
|
22,208 |
|
|
21,090 |
|
|
Real
estate construction loans |
1,909 |
|
|
1,486 |
|
|
1,390 |
|
|
1,843 |
|
|
2,839 |
|
|
Commercial
mortgage loans |
8,706 |
|
|
9,060 |
|
|
9,842 |
|
|
10,025 |
|
|
10,244 |
|
|
Lease
financing |
834 |
|
|
847 |
|
|
864 |
|
|
950 |
|
|
1,086 |
|
|
International
loans |
1,376 |
|
|
1,275 |
|
|
1,272 |
|
|
1,191 |
|
|
1,222 |
|
|
Residential
mortgage loans |
1,778 |
|
|
1,620 |
|
|
1,505 |
|
|
1,580 |
|
|
1,607 |
|
|
Consumer
loans |
2,270 |
|
|
2,153 |
|
|
2,209 |
|
|
2,278 |
|
|
2,429 |
|
|
Total
loans |
46,588 |
|
|
44,412 |
|
|
43,306 |
|
|
40,075 |
|
|
40,517 |
|
|
Less
allowance for loan losses |
(601 |
) |
|
(622 |
) |
|
(693 |
) |
|
(838 |
) |
|
(1,019 |
) |
|
Net
loans |
45,987 |
|
|
43,790 |
|
|
42,613 |
|
|
39,237 |
|
|
39,498 |
|
|
Accrued
income and other assets |
4,445 |
|
|
4,477 |
|
|
4,796 |
|
|
4,710 |
|
|
4,740 |
|
|
Total
assets |
$ |
66,338 |
|
|
$ |
63,933 |
|
|
$ |
62,569 |
|
|
$ |
56,914 |
|
|
$ |
55,550 |
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing
deposits |
$ |
25,019 |
|
|
$ |
22,379 |
|
|
$ |
21,004 |
|
|
$ |
16,994 |
|
|
$ |
15,094 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
market and interest-bearing checking deposits |
22,891 |
|
|
21,704 |
|
|
20,622 |
|
|
19,088 |
|
|
16,355 |
|
|
Savings
deposits |
1,744 |
|
|
1,657 |
|
|
1,593 |
|
|
1,550 |
|
|
1,394 |
|
|
Customer
certificates of deposit |
4,869 |
|
|
5,471 |
|
|
5,902 |
|
|
5,719 |
|
|
5,875 |
|
|
Other
time deposits |
— |
|
|
— |
|
|
— |
|
|
23 |
|
|
306 |
|
|
Foreign
office time deposits |
261 |
|
|
500 |
|
|
412 |
|
|
388 |
|
|
462 |
|
|
Total
interest-bearing deposits |
29,765 |
|
|
29,332 |
|
|
28,529 |
|
|
26,768 |
|
|
24,392 |
|
|
Total
deposits |
54,784 |
|
|
51,711 |
|
|
49,533 |
|
|
43,762 |
|
|
39,486 |
|
|
Short-term
borrowings |
200 |
|
|
211 |
|
|
76 |
|
|
138 |
|
|
216 |
|
|
Accrued
expenses and other liabilities |
1,016 |
|
|
1,074 |
|
|
1,133 |
|
|
1,147 |
|
|
1,099 |
|
|
Medium-
and long-term debt |
2,965 |
|
|
3,972 |
|
|
4,818 |
|
|
5,519 |
|
|
8,684 |
|
|
Total
liabilities |
58,965 |
|
|
56,968 |
|
|
55,560 |
|
|
50,566 |
|
|
49,485 |
|
|
Total
shareholders’ equity |
7,373 |
|
|
6,965 |
|
|
7,009 |
|
|
6,348 |
|
|
6,065 |
|
|
Total
liabilities and shareholders’ equity |
$ |
66,338 |
|
|
$ |
63,933 |
|
|
$ |
62,569 |
|
|
$ |
56,914 |
|
|
$ |
55,550 |
|
HISTORICAL
REVIEW - STATEMENTS OF INCOME
Comerica
Incorporated and Subsidiaries
CONSOLIDATED
FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions, except per share data) |
|
|
|
|
|
|
|
|
|
|
Years
Ended December 31 |
2014 |
|
2013 |
|
2012 |
|
2011 |
|
2010 |
|
INTEREST
INCOME |
|
|
|
|
|
|
|
|
|
|
Interest
and fees on loans |
$ |
1,525 |
|
|
$ |
1,556 |
|
|
$ |
1,617 |
|
|
$ |
1,564 |
|
|
$ |
1,617 |
|
|
Interest
on investment securities |
211 |
|
|
214 |
|
|
234 |
|
|
233 |
|
|
226 |
|
|
Interest
on short-term investments |
14 |
|
|
14 |
|
|
12 |
|
|
12 |
|
|
10 |
|
|
Total
interest income |
1,750 |
|
|
1,784 |
|
|
1,863 |
|
|
1,809 |
|
|
1,853 |
|
|
INTEREST
EXPENSE |
|
|
|
|
|
|
|
|
|
|
Interest
on deposits |
45 |
|
|
55 |
|
|
70 |
|
|
90 |
|
|
115 |
|
|
Interest
on short-term borrowings |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1 |
|
|
Interest
on medium- and long-term debt |
50 |
|
|
57 |
|
|
65 |
|
|
66 |
|
|
91 |
|
|
Total
interest expense |
95 |
|
|
112 |
|
|
135 |
|
|
156 |
|
|
207 |
|
|
Net
interest income |
1,655 |
|
|
1,672 |
|
|
1,728 |
|
|
1,653 |
|
|
1,646 |
|
|
Provision
for credit losses |
27 |
|
|
46 |
|
|
79 |
|
|
144 |
|
|
478 |
|
|
Net
interest income after provision for loan losses |
1,628 |
|
|
1,626 |
|
|
1,649 |
|
|
1,509 |
|
|
1,168 |
|
|
NONINTEREST
INCOME |
|
|
|
|
|
|
|
|
|
|
Service
charges on deposit accounts |
215 |
|
|
214 |
|
|
214 |
|
|
208 |
|
|
208 |
|
|
Fiduciary
income |
180 |
|
|
171 |
|
|
158 |
|
|
151 |
|
|
154 |
|
|
Commercial
lending fees |
98 |
|
|
99 |
|
|
96 |
|
|
87 |
|
|
95 |
|
|
Card
fees |
80 |
|
|
74 |
|
|
65 |
|
|
77 |
|
|
74 |
|
|
Letter
of credit fees |
57 |
|
|
64 |
|
|
71 |
|
|
73 |
|
|
76 |
|
|
Bank-owned
life insurance |
39 |
|
|
40 |
|
|
39 |
|
|
37 |
|
|
40 |
|
|
Foreign
exchange income |
40 |
|
|
36 |
|
|
38 |
|
|
40 |
|
|
39 |
|
|
Brokerage
fees |
17 |
|
|
17 |
|
|
19 |
|
|
22 |
|
|
25 |
|
|
Net
securities (losses) gains |
— |
|
|
(1 |
) |
|
12 |
|
|
14 |
|
|
3 |
|
|
Other
noninterest income |
142 |
|
|
168 |
|
|
158 |
|
|
134 |
|
|
125 |
|
|
Total
noninterest income |
868 |
|
|
882 |
|
|
870 |
|
|
843 |
|
|
839 |
|
|
NONINTEREST
EXPENSES |
|
|
|
|
|
|
|
|
|
|
Salaries
and benefits expense |
980 |
|
|
1,009 |
|
|
1,018 |
|
|
975 |
|
|
919 |
|
|
Net
occupancy expense |
171 |
|
|
160 |
|
|
163 |
|
|
169 |
|
|
162 |
|
|
Equipment
expense |
57 |
|
|
60 |
|
|
65 |
|
|
66 |
|
|
63 |
|
|
Outside
processing fee expense |
122 |
|
|
119 |
|
|
107 |
|
|
101 |
|
|
96 |
|
|
Software
expense |
95 |
|
|
90 |
|
|
90 |
|
|
88 |
|
|
89 |
|
|
Litigation-related
expenses |
4 |
|
|
52 |
|
|
23 |
|
|
10 |
|
|
2 |
|
|
FDIC
insurance expense |
33 |
|
|
33 |
|
|
38 |
|
|
43 |
|
|
62 |
|
|
Advertising
expense |
23 |
|
|
21 |
|
|
27 |
|
|
28 |
|
|
30 |
|
|
Gain
on debt redemption |
(32 |
) |
|
(1 |
) |
|
— |
|
|
— |
|
|
— |
|
|
Merger
and restructuring charges |
— |
|
|
— |
|
|
35 |
|
|
75 |
|
|
— |
|
|
Other
noninterest expenses |
173 |
|
|
179 |
|
|
191 |
|
|
216 |
|
|
219 |
|
|
Total
noninterest expenses |
1,626 |
|
|
1,722 |
|
|
1,757 |
|
|
1,771 |
|
|
1,642 |
|
|
Income
from continuing operations before income taxes |
870 |
|
|
786 |
|
|
762 |
|
|
581 |
|
|
365 |
|
|
Provision
for income taxes |
277 |
|
|
245 |
|
|
241 |
|
|
188 |
|
|
105 |
|
|
Income
from continuing operations |
593 |
|
|
541 |
|
|
521 |
|
|
393 |
|
|
260 |
|
|
Income
from discontinued operations, net of tax |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
17 |
|
|
NET
INCOME |
$ |
593 |
|
|
$ |
541 |
|
|
$ |
521 |
|
|
$ |
393 |
|
|
$ |
277 |
|
|
Less: |
|
|
|
|
|
|
|
|
|
|
Preferred
stock dividends |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
123 |
|
|
Income
allocated to participating securities |
7 |
|
|
8 |
|
|
6 |
|
|
4 |
|
|
1 |
|
|
Net
income attributable to common shares |
$ |
586 |
|
|
$ |
533 |
|
|
$ |
515 |
|
|
$ |
389 |
|
|
$ |
153 |
|
|
Basic
earnings per common share: |
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations |
$ |
3.28 |
|
|
$ |
2.92 |
|
|
$ |
2.68 |
|
|
$ |
2.11 |
|
|
$ |
0.79 |
|
|
Net
income |
3.28 |
|
|
2.92 |
|
|
2.68 |
|
|
2.11 |
|
|
0.90 |
|
|
Diluted
earnings per common share: |
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations |
3.16 |
|
|
2.85 |
|
|
2.67 |
|
|
2.09 |
|
|
0.78 |
|
|
Net
income |
3.16 |
|
|
2.85 |
|
|
2.67 |
|
|
2.09 |
|
|
0.88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income |
572 |
|
|
563 |
|
|
464 |
|
|
426 |
|
|
224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends declared on common stock |
143 |
|
|
126 |
|
|
106 |
|
|
75 |
|
|
44 |
|
|
Cash
dividends declared per common share |
0.79 |
|
|
0.68 |
|
|
0.55 |
|
|
0.40 |
|
|
0.25 |
|
HISTORICAL
REVIEW - STATISTICAL DATA
Comerica
Incorporated and Subsidiaries
CONSOLIDATED
FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
Ended December 31 |
2014 |
|
2013 |
|
2012 |
|
2011 |
|
2010 |
|
Average
Rates (Fully Taxable Equivalent Basis) |
|
|
|
|
|
|
|
|
|
|
Interest-bearing
deposits with banks |
0.26 |
% |
|
0.26 |
% |
|
0.26 |
% |
|
0.24 |
% |
|
0.25 |
% |
|
Other
short-term investments |
0.57 |
|
|
1.22 |
|
|
1.65 |
|
|
2.17 |
|
|
1.58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities |
2.26 |
|
|
2.25 |
|
|
2.43 |
|
|
2.91 |
|
|
3.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
loans |
3.12 |
|
|
3.28 |
|
|
3.44 |
|
|
3.69 |
|
|
3.89 |
|
|
Real
estate construction loans |
3.41 |
|
|
3.85 |
|
|
4.44 |
|
|
4.37 |
|
|
3.17 |
|
|
Commercial
mortgage loans |
3.75 |
|
|
4.11 |
|
|
4.44 |
|
|
4.23 |
|
|
4.10 |
|
|
Lease
financing |
2.33 |
|
|
3.23 |
|
|
3.01 |
|
|
3.51 |
|
|
3.88 |
|
|
International
loans |
3.65 |
|
|
3.74 |
|
|
3.73 |
|
|
3.83 |
|
|
3.94 |
|
|
Residential
mortgage loans |
3.82 |
|
|
4.09 |
|
|
4.55 |
|
|
5.27 |
|
|
5.30 |
|
|
Consumer
loans |
3.20 |
|
|
3.30 |
|
|
3.42 |
|
|
3.50 |
|
|
3.54 |
|
|
Total
loans |
3.28 |
|
|
3.51 |
|
|
3.74 |
|
|
3.91 |
|
|
4.00 |
|
|
Interest
income as a percentage of earning assets |
2.85 |
|
|
3.03 |
|
|
3.27 |
|
|
3.49 |
|
|
3.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
deposits |
0.14 |
|
|
0.18 |
|
|
0.24 |
|
|
0.33 |
|
|
0.48 |
|
|
Deposits
in foreign offices |
0.82 |
|
|
0.52 |
|
|
0.63 |
|
|
0.48 |
|
|
0.31 |
|
|
Total
interest-bearing deposits |
0.15 |
|
|
0.19 |
|
|
0.25 |
|
|
0.33 |
|
|
0.47 |
|
|
Short-term
borrowings |
0.04 |
|
|
0.07 |
|
|
0.12 |
|
|
0.13 |
|
|
0.25 |
|
|
Medium-
and long-term debt |
1.68 |
|
|
1.45 |
|
|
1.36 |
|
|
1.20 |
|
|
1.05 |
|
|
Interest
expense as a percentage of interest-bearing sources |
0.29 |
|
|
0.33 |
|
|
0.41 |
|
|
0.48 |
|
|
0.62 |
|
|
Interest
rate spread |
2.56 |
|
|
2.70 |
|
|
2.86 |
|
|
3.01 |
|
|
3.03 |
|
|
Impact
of net noninterest-bearing sources of funds |
0.14 |
|
|
0.14 |
|
|
0.17 |
|
|
0.18 |
|
|
0.21 |
|
|
Net
interest margin as a percentage of earning assets |
2.70 |
% |
|
2.84 |
% |
|
3.03 |
% |
|
3.19 |
% |
|
3.24 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Ratios |
|
|
|
|
|
|
|
|
|
|
Return
on average common shareholders’ equity |
8.05 |
% |
|
7.76 |
% |
|
7.43 |
% |
|
6.18 |
% |
|
2.74 |
% |
|
Return
on average assets |
0.89 |
|
|
0.85 |
|
|
0.83 |
|
|
0.69 |
|
|
0.50 |
|
|
Efficiency
ratio (a) |
64.31 |
|
|
68.83 |
|
|
69.24 |
|
|
72.73 |
|
|
67.39 |
|
|
Tier
1 common capital as a percentage of risk-weighted assets
(b) |
10.50 |
|
|
10.64 |
|
|
10.14 |
|
|
10.37 |
|
|
10.13 |
|
|
Tier
1 capital as a percentage of risk-weighted assets |
10.50 |
|
|
10.64 |
|
|
10.14 |
|
|
10.41 |
|
|
10.13 |
|
|
Total
capital as a percentage of risk-weighted assets |
12.51 |
|
|
13.10 |
|
|
13.15 |
|
|
14.25 |
|
|
14.54 |
|
|
Tangible
common equity as a percentage of tangible assets (b) |
9.85 |
|
|
10.07 |
|
|
9.76 |
|
|
10.27 |
|
|
10.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
Common Share Data |
|
|
|
|
|
|
|
|
|
|
Book
value at year-end |
$ |
41.35 |
|
|
$ |
39.22 |
|
|
$ |
36.86 |
|
|
$ |
34.79 |
|
|
$ |
32.80 |
|
|
Market
value at year-end |
46.84 |
|
|
47.54 |
|
|
30.34 |
|
|
25.80 |
|
|
42.24 |
|
|
Market
value for the year |
|
|
|
|
|
|
|
|
|
|
High |
53.50 |
|
|
48.69 |
|
|
34.00 |
|
|
43.53 |
|
|
45.85 |
|
|
Low |
42.73 |
|
|
30.73 |
|
|
26.25 |
|
|
21.48 |
|
|
29.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Data (share data in millions) |
|
|
|
|
|
|
|
|
|
|
Average
common shares outstanding - basic |
179 |
|
|
183 |
|
|
191 |
|
|
185 |
|
|
170 |
|
|
Average
common shares outstanding - diluted |
185 |
|
|
187 |
|
|
192 |
|
|
186 |
|
|
173 |
|
|
Number
of banking centers |
481 |
|
|
483 |
|
|
489 |
|
|
494 |
|
|
444 |
|
|
Number
of employees (full-time equivalent) |
8,876 |
|
|
8,948 |
|
|
9,035 |
|
|
9,468 |
|
|
9,073 |
|
|
|
|
(a) |
Noninterest
expenses as a percentage of the sum of net interest income (FTE) and
noninterest income excluding net securities gains
(losses). |
|
|
|
(b) |
See
Supplemental Financial Data section for reconcilements of non-GAAP
financial measures. |
SIGNATURES
Pursuant to the requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized as of February 17,
2015.
|
|
|
|
|
|
|
COMERICA
INCORPORATED |
|
|
|
|
|
|
|
By: |
|
/s/
Ralph W. Babb, Jr. |
|
|
|
|
Ralph
W. Babb, Jr.
Chairman,
President and Chief Executive
Officer |
Pursuant to the requirements of
the Securities Exchange Act of 1934, this report has been signed by the
following persons on behalf of the registrant in the capacities indicated as of
February 17,
2015.
|
|
|
|
|
/s/
Ralph W. Babb, Jr. |
|
Chairman,
President and Chief Executive Officer and |
|
Ralph
W. Babb, Jr. |
|
Director
(Principal Executive Officer) |
|
|
|
|
|
/s/
Karen L. Parkhill |
|
Vice
Chairman and Chief Financial Officer |
|
Karen
L. Parkhill |
|
(Principal
Financial Officer) |
|
|
|
|
|
/s/
Muneera S. Carr |
|
Executive
Vice President and Chief Accounting Officer |
|
Muneera
S. Carr |
|
(Principal
Accounting Officer) |
|
|
|
|
|
/s/
Roger A. Cregg |
|
|
|
Roger
A. Cregg |
|
Director |
|
|
|
|
|
/s/
T. Kevin DeNicola |
|
|
|
T.
Kevin DeNicola |
|
Director |
|
|
|
|
|
/s/
Jacqueline P. Kane |
|
|
|
Jacqueline
P. Kane |
|
Director |
|
|
|
|
|
/s/
Richard G. Lindner |
|
|
|
Richard
G. Lindner |
|
Director |
|
|
|
|
|
|
|
|
|
Alfred
A. Piergallini |
|
Director |
|
|
|
|
|
/s/
Robert S. Taubman |
|
|
|
Robert
S. Taubman |
|
Director |
|
|
|
|
|
/s/
Reginald M. Turner, Jr. |
|
|
|
Reginald
M. Turner, Jr. |
|
Director |
|
|
|
|
|
/s/
Nina G. Vaca |
|
|
|
Nina
G. Vaca |
|
Director |
EXHIBIT
INDEX
|
|
|
|
|
2.1 |
|
Agreement
and Plan of Merger, dated as of January 16, 2011, by and among
Comerica Incorporated, Sterling Bancshares, Inc., and, from and after its
accession to the Agreement, Sub (as defined therein) (the schedules and
exhibits have been omitted pursuant to Item 601(b)(2) of Regulation
S-K) (filed as Exhibit 2.1 to Registrant's Current Report on Form 8-K
dated January 16, 2011, and incorporated herein by
reference). |
|
|
|
|
|
3.1 |
|
Restated
Certificate of Incorporation of Comerica Incorporated (filed as Exhibit
3.2 to Registrant's Current Report on Form 8-K dated August 4, 2010, and
incorporated herein by reference). |
|
|
|
|
|
3.2 |
|
Certificate
of Amendment to Restated Certificate of Incorporation of Comerica
Incorporated (filed as Exhibit 3.2 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2011, and incorporated herein by
reference). |
|
|
|
|
|
3.3 |
|
Amended
and Restated Bylaws of Comerica Incorporated (filed as Exhibit 3.3 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31,
2011, and incorporated herein by reference). |
|
|
|
|
|
4 |
|
[Reference
is made to Exhibits 3.1, 3.2 and 3.3 in respect of instruments
defining the rights of security holders. In accordance with
Regulation S-K Item No. 601(b)(4)(iii), the Registrant is not
filing copies of instruments defining the rights of holders of long-term
debt because none of those instruments authorizes debt in excess of 10% of
the total assets of the registrant and its subsidiaries on a consolidated
basis. The Registrant hereby agrees to furnish a copy of any such
instrument to the SEC upon request.] |
|
|
|
|
|
4.1 |
|
Warrant
Agreement, dated May 6, 2010, between the registrant and Wells Fargo Bank,
N.A. (filed as Exhibit 4.1 to Registrant's Registration Statement on Form
8-A dated May 7, 2010, and incorporated herein by
reference). |
|
|
|
|
|
4.2 |
|
Form
of Warrant (filed as Exhibit 4.1 to Registrant's Registration Statement on
Form 8-A dated May 7, 2010, and incorporated herein by
reference). |
|
|
|
|
|
4.3 |
|
Warrant
Agreement, dated as of June 9, 2010, between Comerica Incorporated (as
successor to Sterling Bancshares, Inc.) and American Stock Transfer &
Trust Company, LLC (filed as Exhibit 4.1 to Sterling Bancshares, Inc.'s
Registration Statement on Form 8-A12B filed on June 10, 2010 (File No.
001-34768) and incorporated herein by reference). |
|
|
|
|
|
4.4 |
|
Form
of Warrant (filed as Exhibit 4.2 to Registrant's Registration Statement on
Form S-4 (File No. 333-172211), and incorporated herein by
reference). |
|
|
|
|
|
9 |
|
(not
applicable) |
|
|
|
|
|
10.1† |
|
Comerica
Incorporated 2006 Amended and Restated Long-Term Incentive Plan (filed as
Exhibit 10.1 to Registrant's Current Report on Form 8-K dated
April 23, 2013, and incorporated herein by reference). |
|
|
|
|
|
10.1A† |
|
Form
of Standard Comerica Incorporated Non-Qualified Stock Option Agreement
under the Comerica Incorporated Amended and Restated 2006 Long-Term
Incentive Plan (filed as Exhibit 10.7 to Registrant's Annual Report
on Form 10-K for the year ended December 31, 2006, and
incorporated herein by reference). |
|
|
|
|
|
10.1B† |
|
Form
of Standard Comerica Incorporated Non-Qualified Stock Option Agreement
under the Comerica Incorporated Amended and Restated 2006 Long-Term
Incentive Plan (2011 version) (filed as Exhibit 10.44 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 2010,
and incorporated herein by reference). |
|
|
|
|
|
10.1C† |
|
Form
of Standard Comerica Incorporated Non-Qualified Stock Option Agreement
under the Comerica Incorporated Amended and Restated 2006 Long-Term
Incentive Plan (2012 version) (filed as Exhibit 10.1C to Registrant's
Annual Report on Form 10-K for the year ended December 31, 2011, and
incorporated herein by reference) . |
|
|
|
|
|
10.1D† |
|
Form
of Standard Comerica Incorporated Non-Qualified Stock Option Agreement
under the Comerica Incorporated Amended and Restated 2006 Long-Term
Incentive Plan (2014 version) (filed as Exhibit 10.1 to Registrant's
Current Report on Form 8-K dated January 21, 2014, and incorporated herein
by reference). |
|
|
|
|
|
10.1E† |
|
Form
of Standard Comerica Incorporated Non-Qualified Stock Option Agreement
under the Comerica Incorporated Amended and Restated 2006 Long-Term
Incentive Plan (2014 version 2) (filed as Exhibit 10.1 to Registrant's
Current Report on Form 8-K dated July 22, 2014, and incorporated herein by
reference). |
|
|
|
|
|
10.1F† |
|
Form
of Standard Comerica Incorporated Restricted Stock Award Agreement
(non-cliff vesting) under the Amended and Restated Comerica Incorporated
2006 Long-Term Incentive Plan (filed as Exhibit 10.11 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 2006,
and incorporated herein by reference). |
|
|
|
|
|
10.1G† |
|
Form
of Standard Comerica Incorporated Restricted Stock Award Agreement
(non-cliff vesting) under the Amended and Restated Comerica Incorporated
2006 Long-Term Incentive Plan (2011 version) (filed as Exhibit 10.46
to Registrant's Annual Report on Form 10-K for the year ended
December 31, 2010, and incorporated herein by
reference). |
|
|
|
|
|
|
|
|
|
10.1H† |
|
Form
of Standard Comerica Incorporated Restricted Stock Award Agreement
(non-cliff vesting) under the Amended and Restated Comerica Incorporated
2006 Long-Term Incentive Plan (2012 version) (filed as Exhibit 10.1F to
Registrant's Annual Report on Form 10-K for the year ended December 31,
2011, and incorporated herein by reference). |
|
|
|
|
|
10.1I† |
|
Form
of Standard Comerica Incorporated Restricted Stock Award Agreement
(non-cliff vesting) under the Amended and Restated Comerica Incorporated
2006 Long-Term Incentive Plan (2014 version) (filed as Exhibit 10.2 to
Registrant's Current Report on Form 8-K dated January 21, 2014, and
incorporated herein by reference). |
|
|
|
|
|
10.1J† |
|
Form
of Standard Comerica Incorporated Restricted Stock Award Agreement
(non-cliff vesting) under the Amended and Restated Comerica Incorporated
2006 Long-Term Incentive Plan (2014 version 2) (filed as Exhibit 10.2 to
Registrant's Current Report on Form 8-K dated July 22, 2014, and
incorporated herein by reference). |
|
|
|
|
|
10.1K† |
|
Form
of Standard Comerica Incorporated Restricted Stock Award Agreement (cliff
vesting) under the Comerica Incorporated 2006 Amended and Restated
Long-Term Incentive Plan (filed as Exhibit 99.1 to Registrant's
Current Report on Form 8-K dated January 22, 2007, and
incorporated herein by reference). |
|
|
|
|
|
10.1L† |
|
Form
of Standard Comerica Incorporated Restricted Stock Award Agreement (cliff
vesting) under the Comerica Incorporated 2006 Amended and Restated
Long-Term Incentive Plan (2011 version) (filed as Exhibit 10.45 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 2010, and incorporated herein by
reference). |
|
|
|
|
|
10.1M† |
|
Form
of Standard Comerica Incorporated Restricted Stock Award Agreement (cliff
vesting) under the Comerica Incorporated 2006 Amended and Restated
Long-Term Incentive Plan (2012 version) (filed as Exhibit 10.1I to
Registrant's Annual Report on Form 10-K for the year ended December 31,
2011, and incorporated herein by reference). |
|
|
|
|
|
10.1N† |
|
Form
of Standard Comerica Incorporated Restricted Stock Award Agreement (cliff
vesting) under the Comerica Incorporated 2006 Amended and Restated
Long-Term Incentive Plan (long-term restricted version) (filed as
Exhibit 10.41 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 2009, and incorporated herein by
reference). |
|
|
|
|
|
10.1O† |
|
Form
of Standard Comerica Incorporated Restricted Stock Unit Agreement under
the Amended and Restated Comerica Incorporated 2006 Long-Term Incentive
Plan (2011 version) (filed as Exhibit 10.47 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 2010, and
incorporated herein by reference). |
|
|
|
|
|
10.1P† |
|
Form
of Standard Comerica Incorporated Restricted Stock Unit Agreement under
the Amended and Restated Comerica Incorporated 2006 Long-Term Incentive
Plan (2011 version 2) (filed as Exhibit 10.5 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2011, and
incorporated herein by reference). |
|
|
|
|
|
10.1Q† |
|
Form
of Standard Comerica Incorporated Performance Restricted Stock Unit
Agreement under the Amended and Restated Comerica Incorporated 2006
Long-Term Incentive Plan (2012 version) (filed as Exhibit 10.1 to
Registrant's Current Report on Form 8-K dated November 19, 2012, and
incorporated herein by reference). |
|
|
|
|
|
10.1R† |
|
Form
of Standard Comerica Incorporated Senior Executive Long-Term Performance
Restricted Stock Unit Award Agreement under the Amended and Restated
Comerica Incorporated 2006 Long-Term Incentive Plan (filed as Exhibit 10.3
to Registrant's Current Report on Form 8-K dated January 21, 2014, and
incorporated herein by reference). |
|
|
|
|
|
10.1S† |
|
Form
of Standard Comerica Incorporated Senior Executive Long-Term Performance
Restricted Stock Unit Award Agreement under the Amended and Restated
Comerica Incorporated 2006 Long-Term Incentive Plan (2014 version 2)
(filed as Exhibit 10.3 to Registrant's Current Report on Form 8-K dated
July 22, 2014, and incorporated herein by reference). |
|
|
|
|
|
10.2† |
|
Comerica
Incorporated 1997 Amended and Restated Long-Term Incentive Plan (filed as
Exhibit 10.1 to Registrant's Annual Report on Form 10-K for the year ended
December 31, 2001, and incorporated herein by
reference). |
|
|
|
|
|
10.2A† |
|
Form
of Standard Comerica Incorporated Non-Qualified Stock Option Agreement
under the Amended and Restated Comerica Incorporated 1997 Long-Term
Incentive Plan (filed as Exhibit 10.4 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2004,
and incorporated herein by reference). |
|
|
|
|
|
10.3† |
|
Amended
and Restated Sterling Bancshares, Inc. 2003 Stock Incentive and
Compensation Plan effective April 30, 2007 (filed as Exhibit 10.1 to
Sterling Bancshares, Inc.'s Current Report on Form 8-K dated August 14,
2007 (File No. 000-20750), and incorporated herein by
reference). |
|
|
|
|
|
10.4† |
|
1994
Incentive Stock Option Plan of Sterling Bancshares, Inc. (filed as Exhibit
10.1 Sterling Bancshares, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1994 (File No. 000-20750), and incorporated herein by
reference). |
|
|
|
|
|
10.5† |
|
Comerica
Incorporated Amended and Restated Employee Stock Purchase Plan (amended
and restated October 22, 2013) (filed as Exhibit 10.5 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 2013, and
incorporated herein by reference). |
|
|
|
|
|
|
|
|
|
10.6† |
|
Comerica
Incorporated 2011 Management Incentive Plan (filed as Exhibit 10.1 to
Registrant's Current Report on Form 8-K dated April 26, 2011, and
incorporated herein by reference). |
|
|
|
|
|
10.6A† |
|
Form
of Standard Comerica Incorporated No Sale Agreement under the Comerica
Incorporated Amended and Restated Management Incentive Plan (filed as
Exhibit 10.5 to Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 2004, and incorporated herein by
reference). |
|
|
|
|
|
10.7† |
|
Amended
and Restated Benefit Equalization Plan for Employees of Comerica
Incorporated (amended and restated March 24, 2009, with amendments
effective January 1, 2009) (filed as Exhibit 10.1 to
Registrant's Current Report on Form 8-K dated March 24, 2009,
and incorporated herein by reference). |
|
|
|
|
|
10.8† |
|
1999
Comerica Incorporated Amended and Restated Deferred Compensation Plan
(amended and restated on July 26, 2011) (filed as Exhibit 10.1 to
Registrant's Current Report on Form 8-K dated July 26, 2011, and
incorporated herein by reference). |
|
|
|
|
|
10.9† |
|
1999
Comerica Incorporated Amended and Restated Common Stock Deferred Incentive
Award Plan (amended and restated on July 26, 2011) (filed as Exhibit 10.2
to Registrant's Current Report on Form 8-K dated July 26, 2011, and
incorporated herein by reference). |
|
|
|
|
|
10.10† |
|
Sterling
Bancshares, Inc. Deferred Compensation Plan (as Amended and Restated)
(filed as Exhibit 4.4 to Registrant's
Registration
Statement on Form S-8 dated July 28, 2011 (Registration No. 333-175857)
and incorporated herein by reference). |
|
|
|
|
|
10.11† |
|
Amended
and Restated Comerica Incorporated Stock Option Plan For Non-Employee
Directors (amended and restated on May 22, 2001) (filed as Exhibit 10.12
to Registrant's Annual Report on Form 10-K for the year ended December 31,
2002, and incorporated herein by reference). |
|
|
|
|
|
10.12† |
|
Amended
and Restated Comerica Incorporated Stock Option Plan For Non-Employee
Directors of Comerica Bank and Affiliated Banks (amended and restated May
22, 2001) (filed as Exhibit 10.13 to Registrant's Annual Report on Form
10-K for the year ended December 31, 2002, and incorporated herein by
reference). |
|
|
|
|
|
10.13† |
|
Amended
and Restated Comerica Incorporated Non-Employee Director Fee Deferral Plan
(amended and restated on January 27, 2015) (filed
herewith). |
|
|
|
|
|
10.14† |
|
Amended
and Restated Comerica Incorporated Common Stock Non-Employee Director Fee
Deferral Plan (amended and restated on January 27, 2015) (filed
herewith). |
|
|
|
|
|
10.15† |
|
Comerica
Incorporated Amended and Restated Incentive Plan for Non-Employee
Directors (amended and restated on November 18, 2008, with amendments
effective December 31, 2008) (filed as Exhibit 10.24 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 2008, and incorporated herein by
reference). |
|
|
|
|
|
10.15A† |
|
Form
of Standard Comerica Incorporated Non-Employee Director Restricted Stock
Unit Agreement under the Comerica Incorporated Amended and Restated
Incentive Plan for Non-Employee Directors (filed as Exhibit 10.2 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2005, and incorporated herein by
reference). |
|
|
|
|
|
10.15B† |
|
Form
of Standard Comerica Incorporated Non-Employee Director Restricted Stock
Unit Agreement under the Comerica Incorporated Amended and Restated
Incentive Plan for Non-Employee Directors (Version 2) (filed as
Exhibit 10.6 to Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2006, and incorporated herein by
reference). |
|
|
|
|
|
10.15C† |
|
Form
of Standard Comerica Incorporated Non-Employee Director Restricted Stock
Unit Agreement under the Comerica Incorporated Amended and Restated
Incentive Plan for Non-Employee Directors (Version 2.5) (filed as
Exhibit 10.48 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 2010, and incorporated herein by
reference). |
|
|
|
|
|
10.15D† |
|
Form
of Standard Comerica Incorporated Non-Employee Director Restricted Stock
Unit Agreement under the Comerica Incorporated Amended and Restated
Incentive Plan for Non-Employee Directors (Version 3) (filed as
Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2009, and incorporated herein by
reference). |
|
|
|
|
|
10.15E† |
|
Form
of Standard Comerica Incorporated Non-Employee Director Restricted Stock
Unit Agreement under the Comerica Incorporated Amended and Restated
Incentive Plan for Non-Employee Directors (Version 4) (filed as Exhibit
10.4 to Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2011, and incorporated herein by reference). |
|
|
|
|
|
10.16† |
|
Form
of Director Indemnification Agreement between Comerica Incorporated and
certain of its directors (filed as Exhibit 10.6 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 2002,
and incorporated herein by reference). |
|
|
|
|
|
|
|
|
|
10.17† |
|
Supplemental
Benefit Agreement with Eugene A. Miller (filed as Exhibit 10.1 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2002, and incorporated herein by
reference). |
|
|
|
|
|
10.18† |
|
Supplemental
Pension and Retiree Medical Agreement with Ralph W. Babb Jr. (filed as
Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998, and incorporated herein by
reference). |
|
|
|
|
|
10.19A† |
|
Restrictive
Covenants and General Release Agreement by and between J. Michael Fulton
and Comerica Incorporated dated April 3, 2014 (filed as Exhibit 10.1 to
Registrant's Current Report on Form 8-K dated April 3, 2014, and
incorporated herein by reference). |
|
|
|
|
|
10.19B† |
|
Restrictive
Covenants and General Release Agreement by and between Elizabeth S. Acton
and Comerica Incorporated dated April 20, 2012 (filed as Exhibit 10.1 to
Registrant's Current Report on Form 8-K dated April 25, 2012, and
incorporated herein by reference). |
|
|
|
|
|
10.19C† |
|
Restrictive
Covenants and General Release Agreement by and between Dale E. Greene and
Comerica Incorporated dated August 22, 2011 (filed as Exhibit 10.1 to
Registrant's Current Report on Form 8-K dated August 22, 2011, and
incorporated herein by reference). |
|
|
|
|
|
10.19D† |
|
Restrictive
Covenants and General Release Agreement by and between Mary Constance Beck
and Comerica Incorporated dated January 21, 2011 (filed as Exhibit 10.1 to
Registrant's Current Report on Form 8-K dated January 21, 2011, and
incorporated herein by reference). |
|
|
|
|
|
10.20† |
|
Form
of Change of Control Employment Agreement (BE4 and Higher Version without
gross-up or window period-current) (filed as Exhibit 10.42 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 2009, and incorporated herein by
reference). |
|
|
|
|
|
10.20A† |
|
Schedule
of Named Executive Officers Party to Change of Control Employment
Agreement (BE4 and Higher Version without gross-up or window
period-current). |
|
|
|
|
|
10.21† |
|
Form
of Change of Control Employment Agreement (BE4 and Higher Version) (filed
as Exhibit 10.1 to Registrant's Current Report on Form 8-K dated
November 18, 2008, and incorporated herein by
reference). |
|
|
|
|
|
10.21A† |
|
Schedule
of Named Executive Officers Party to Change of Control Employment
Agreement (BE4 and Higher Version). |
|
|
|
|
|
10.22† |
|
Form
of Change of Control Employment Agreement (BE2-BE3 Version) (filed as
Exhibit 10.2 to Registrant's Current Report on Form 8-K dated
November 18, 2008, and incorporated herein by
reference). |
|
|
|
|
|
10.23† |
|
Waiver
of Senior Executive Officers dated November 14, 2008 (filed as
Exhibit 10.2 to Registrant's Current Report on Form 8-K dated
November 13, 2008, regarding U.S. Department of Treasury's Capital
Purchase Program, and incorporated herein by
reference). |
|
|
|
|
|
11 |
|
Statement
regarding Computation of Net Income Per Common Share (incorporated by
reference from Note 15 on page F-90 of this Annual Report
on Form 10-K). |
|
|
|
|
|
12 |
|
(not
applicable) |
|
|
|
|
|
13 |
|
(not
applicable) |
|
|
|
|
|
14 |
|
(not
applicable) |
|
|
|
|
|
16 |
|
(not
applicable) |
|
|
|
|
|
18 |
|
(not
applicable) |
|
|
|
|
|
21 |
|
Subsidiaries
of Registrant. |
|
|
|
|
|
22 |
|
(not
applicable) |
|
|
|
|
|
23.1 |
|
Consent
of Ernst & Young LLP. |
|
|
|
|
|
24 |
|
(not
applicable) |
|
|
|
|
|
31.1 |
|
Chairman,
President and CEO Rule 13a-14(a)/15d-14(a) Certification of Periodic
Report (pursuant to Section 302 of the Sarbanes-Oxley Act of
2002). |
|
|
|
|
|
31.2 |
|
Executive
Vice President and CFO Rule 13a-14(a)/15d-14(a) Certification of
Periodic Report (pursuant to Section 302 of the Sarbanes-Oxley Act of
2002). |
|
|
|
|
|
32 |
|
Section 1350
Certification of Periodic Report (pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002). |
|
|
|
|
|
33 |
|
(not
applicable) |
|
|
|
|
|
|
|
|
|
34 |
|
(not
applicable) |
|
|
|
|
|
35 |
|
(not
applicable) |
|
|
|
|
|
95 |
|
(not
applicable) |
|
|
|
|
|
99 |
|
(not
applicable) |
|
|
|
|
|
100 |
|
(not
applicable) |
|
|
|
|
|
101 |
|
Financial
statements from Annual Report on Form 10-K of the Registrant for the
year ended December 31, 2014, formatted in Extensible Business
Reporting Language: (i) the Consolidated Balance Sheets,
(ii) the Consolidated Statements of Income, (iii) the
Consolidated Statements of Changes in Shareholders' Equity, (iv) the
Consolidated Statements of Cash Flows and (v) the Notes to
Consolidated Financial Statements. |
|
|
|
|
|
† |
|
Management
contract or compensatory plan or arrangement. |
|
|
|
|
|
|
|
File
No. for all filings under Exchange Act, unless otherwise noted:
1-10706. |
